Due to the lack of borrowing demand the Anchor protocol's reserves are on the verge of depletion

Anchor interest rates appear to be unsustainable with too many depositors attempting to obtain high-yields and a lack of borrowers.

According to Terra.Engineer, the flagship savings protocol of the Terra Luna (LUNA) ecosystem, its reserves have decreased by 35.7% in the past seven days. Since December 1st, the quantity of UST stored in the “terra1tmnqgvg567ypvsvk6rwsga3sr

Users invest their UST assets in their wallets, which they use to secure loans. As a savings strategy, depositors deposit their USD holdings into their wallets and earn up to 20% returns as the principal is lent out to borrowers who pay interest on the loan amount. In order for the lender to get back his or her money if a borrower defaults

Anchor must use the aforementioned TerraUSD (UST) reserves to make up for the gap between loans’ interest income, collateral staking, and yield expenses paid out to depositors whenever there is a deficit. Last July, Terraform Labs introduced 70 million UST into the reserve protocol, which kept its value mostly stable.

Investors tend to flee a volatile market in search of a more stable asset class, such as high-yield savings instruments, during bear markets. However, the growing gap between Anchor’s deposits and borrowings has put a lot of strain on its reserves. If the trend continues, Terraform Labs will need to give another UST injection for liquidity.

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