Table of Links
2. Data and quantitative nature of the events
2.2. Transaction data analysis
3. Methodology
3.1. Network analysis: Triangulated Maximally Filtered Graph (TMFG)
4. Results
4.1. Correlations and network analysis
4.2. Herding analysis: CSAD approach
6. Implications and future research
6.1. Relevance for stakeholders
7. Conclusion, Acknowledgements, and References
2.3. Anchor protocol
Anchor (Anchor, 2022) was a savings protocol designed to allow users from Terra ecosystem to (i) lend capital (UST) and (ii) borrow capital (UST) using bonded assets (bAssets, i.e. tokens representing ownership of an asset on a Proofof-Stake blockchain) as collateral (see Figure 3). Anchor protocol was at the base of the fast expansion of Terra project since it offered to its depositors up to 20% APY. This scheme was similar to the one used by Iron Finance, which offered more than 100% APY (Iron Finance, 2021b).
Looking at Table 3 it is possible to see how, from 17 June 2021 to 06 May 2022, total UST deposits in Anchor increased by 3826%[10]. Consequently, before the Terra collapse, this protocol kept the 75% of all the UST circulating supply, leaving the remaining 25% as a means of exchange. According to Platias et al. (2020), Anchor’s mechanism was originally designed to allow the borrower to pay less interest as the utilization ratio (borrowed deposits divided by total deposits) decreased, resulting in lower interests for the depositor. However, despite the decrease in the utilisation ratio, the deposit interest rate was kept around 20% since 2021 (Anchor Protocol, 2021; Jung, 2022). In addition, the deposit interest rate was computed considering the yields of all bAssets used as collateral for borrowing the stablecoin, while its value did not increase significantly since January 2022. The unsustainability of the protocol is confirmed by capital infusions into Anchor’s reserves in February 2022 (Kelly, 2022) and by recurrent requests from community members for the modification of the interest rates’ mechanism (Anchor Forum, 2022). Compared to fiat currencies, UST was mainly used for speculative purposes, which implied that it was more prone to extreme market events. Looking at Table 3, we observe that, from 06 May 2022 to 11 May 2022, the protocol lost around 9.5 billions in UST, i.e. the 69% of the deposits. Thus, once it became evident that both the Terra system and the high-interest rate mechanism were at risk, depositors sold their UST igniting the bank run.
Authors:
(1) Antonio Briola, Department of Computer Science, University College London, Gower Street, WC1E 6EA - London, United Kingdom and UCL Centre for Blockchain Technologies, London, United Kingdom;
(2) David Vidal-Tomas (Corresponding author), Department of Computer Science, University College London, Gower Street, WC1E 6EA - London, United Kingdom, Department of Economics, Universitat Jaume I, Campus del Riu Sec, 12071 - Castellon, Spain and UCL Centre for Blockchain Technologies, London, United Kingdom ([email protected]);
(3) Yuanrong Wang, Department of Computer Science, University College London, Gower Street, WC1E 6EA - London, United Kingdom and UCL Centre for Blockchain Technologies, London, United Kingdom;
(4) Tomaso Aste, Department of Computer Science, University College London, Gower Street, WC1E 6EA - London, United Kingdom, Systemic Risk Centre, London School of Economics, London, United Kingdom, and UCL Centre for Blockchain Technologies, London, United Kingdom.
This paper is available on arxiv under CC BY-NC-ND 4.0 DEED license.
[10] Data from Anchor protocol dashboard is available since 17 June 2021. No data are available on 07 May 2022.
