Dropping Anchor at §6050I
Let's Drop Anchor and Discuss Section 6050I of the Infrastructure Bill
Anchors Away! ⚓️
You don’t always have to be exposed to the extreme price fluctuations that we’ve come to accept as the norm in crypto. I mean look at last night, Bitcoin dropped over 8.5% with some altcoins dropping more than 15% in 8 hours. Combine this crazy volatility with a market that operates 24/7 and you might become obsessed with checking charts on your phone. Don’t be that guy who has to step into the other room because your Tradingview alerts keep pinging you for every 1% your shitcoin drops. If only there was a way to gain exposure to the crypto markets without owning any of these volatile coins. Well, my friends, let me tell you a secret about how easy it is to earn 20% APR on a stablecoin, in this case, UST.
Back in June, we came across a protocol that at first we thought was way too good to be true. The project, Anchor, operates on the Terra blockchain and it advertises a stable earn rate of 19.5-20.5%. Before we move on any further, let me stop and say that yes, it is real. We have used the protocol for the last 6 months and the earn rate is exactly what they have advertised it as. This protocol has allowed us to take on a safe position that earns a steady, predictable interest rate in a stablecoin (not a speculative native token!) which we can withdraw from the protocol at any time we choose. Well, how is this all possible?
The two things you should question before investing in this protocol are how does the Terra ecosystem work and how does the Anchor Protocol work. For right now we are only going to focus on how Anchor can guarantee the “Anchor Rate” of 19.5-20.5%, and not so much on how the Terra network works. Anchor utilizes the staking rewards of the Terra network as well as a money market between lenders and borrowers. With these two functions, depositors can earn the necessary 20% on their funds. Let’s look at it with a numerical example because, to be honest, it was the only thing that made sense to us too.
As you can see above, there is currently $2,063,468,959 deposited into Anchor with $1,252,831,952 of those deposits now borrowed. What Anchor does with the deposited UST is convert it to LUNA to stake for roughly 5%. We even expect this number to increase due to several recent developments, but it has remained steady at around 5% the last couple of months. Now, those who want to borrow funds must pay 26.1% on those borrowed funds as highlighted by the screenshot above. Let’s run the numbers on the above scenario.
$2,063,468,959 x 5% = $103,173,447 earned via LUNA staking
$1,252,831,952 x 26.1% = $326,989,139 earned via borrowing
This provides the Anchor protocol with a total yearly income of $430,162,586 or in other words, 20.8% interest on the total amount deposited. And it is all that simple. You even have the possibility of insuring your position in Anchor from a hack or UST losing its $1.00 peg. If you have the degen spirit, you can leverage your position through another protocol to bring these stable yields upwards of 100%. The possibilities in DeFi are endless, there are strategies for just about anyone to get involved. What are you still waiting for?
Infrastructure Bill: §6050I
The ambiguous definition of "broker" in the infrastructure bill has made its rounds through the crypto community with its potential to stifle any innovation in the U.S. What I want to unpack is the other side of the infrastructure bill: §6050I. Currently, the provision of the U.S. tax code requires businesses to file reports (including names and Social Security numbers) about their counterparties whenever they receive more than $10,000 in cash. Through the infrastructure bill, similar reporting would be required when businesses receive more than $10,000 in cryptocurrencies.
Unfortunately, the §6050I reporting provision is overzealous, to say the least... draconian if you will. This rule should have been labeled unconstitutional with its blatant erosion of privacy laws that American citizens have every right to express. §6050I would also be difficult or impossible to obey, and impose, in the context of cryptocurrency transactions as the nature of crypto is decentralized. You'd think maybe someone, anyone, writing this bill would maybe perform some sort of diligent research regarding the realistic outcome of such a provision.
Comparing the Bank Secrecy Act to §6050I is relevant in this discussion. The BSA is a warrantless surveillance regime that mandates banks and financial institutions to pool up banking details of every American, regardless of a crime committed, and hands that personal information to law enforcement and other intelligence agencies without any check or balance - the principle of government under which separate branches are empowered to prevent actions by other branches and are induced to share power - from the Judiciary. Time travel back to Government 101 in high school and this would be called a big no-no. The sole reason this blatant invasion of privacy was passed under the Constitution is that banks are labeled as a third-party when performing transactions for their customers. When signing up for a bank, the individual is signing over transaction information in exchange for a third-party service to put it simply. The well-known "third-party" doctrine is comprised of this exchange but clearly removes the application of the Fourth Amendment warrant requirement.
Constitution of United States of America 1789 (rev. 1992) - Amendment IV
The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.
Now how is this relevant? Well §6050I reports are also categorized under surveillance but there is no third party! The BSA requires one individual facilitating a two-person transaction to collect sensitive information from the counterparty and hand that to government officials without any warrant. Crypto is peer to peer, meaning two persons exchanging crypto would have to report on each other.
Ask yourself this: Why would the third-party doctrine apply when there are only two parties involved? Why would it be constitutional for the Judiciary (Police) to force an American citizen to collect sensitive information from other Americans if they could not collect that information themselves without a warrant?
What is clear is Section 6050I will be challenged on the weak logic it states. Buckle up.
Written by: Theo White and Ryan Celaj
Taproot - Bitcoin’s Big Upgrade