Anchor Protocol (ANC) Market Analysis
Anchor is a DeFi savings protocol based on the Terra network which utilizes liquid staking derivatives to achieve stable interest rates. Along with the Terra Protocol for asset stabilization and Mirror Protocol for synthetic assets, these three are the major DeFi protocols launched by Terraform Labs.
Anchor Protocol aims to become the reference rate in the whole blockchain market or a version of Stripe involving savings, and wishes to provide stable interest rate earnings for cryptocurrency users, so as to promote the mainstream adoption of DeFi.
Anchor Protocol is a new savings protocol based on Terra Money, which aims to balance interest rates by coordinating block rewards from multiple different PoS blockchain consensus to finally achieve a stable interest rate.
The core mechanism of Anchor is to use the market structure of tokens to connect depositors and borrowers. Contrary to most current digital asset markets (such as Aave and Compound), Anchor’s architecture is designed specifically for depositors by providing more stable interest rates. To achieve this goal, Anchor consists of several different components.
Depositor: from the perspective of depositors, the Anchor Protocol is very simple. The Anchor Platform provides the stable asset depositors on Terra Platform with a fixed interest rate called Anchor Rate, which is initially set at 20%, and can be adjusted based on governance in the future. In contrast to the prevailing volatility in cryptocurrency, Anchor will become one of the main platforms for predictable passive earnings.
Borrower: one of the most important design decisions about the Anchor token market is that the protocol only supports blockchain staked assets agreed upon by mainstream PoS as collateral. The reason is that as the assets generate natural earnings, the rewards generated by these blockchains are more stable and powerful, which can ensure that the Anchor Rate of the depositors is maintained at a certain level.
In the Anchor System, the borrower deposits the staked derivatives of each block chain (called bAssets in Anchor) as collateral, and sacrifices the staked earnings of the assets in return for the ability to loan (the subsidy interest rate maybe 0) and ANC rewards. In turn, the staked earnings generated by these assets can be used to subsidize the accrued interest of the Anchor depositors. Initially, Anchor only accepted bLUNA (representing the staked Luna) as collateral, and then expanded to accept more mainstream PoS blockchain staked asset derivatives, including Ethereum, Polkadot, Cosmos and Solana.
Stabilization mechanism: however, in order for the above system to work properly, there must be a certain balance between depositors and borrowers. Otherwise, there may be two unfavorable situations.
The first and most unfavorable situation is that the staked earnings generated by bAssets in the platform are not enough to cover the Anchor Rate of depositors. In order to reduce the possibility of these situations, Anchor introduces a stabilization mechanism, which works as follows:
If the staked rate of return (the staked earnings generated from the borrower’s mortgage assets) is higher than the target rate of return (interest to be paid to the depositor), two cases will occur:
1. The excess earnings will be stored in the “income reserve” in UST;
2. Reduction of the ANC reward for the borrowers, and reduce 10% per epoch per week.
If the staked earnings are lower than the target rate of return, the following two situations will occur:
1. Take out the desired amount from the “income reserve” for replenishment;
2. Increase the ANC incentive for borrowers, and double each epoch every week until the actual rate of return converges to the target rate of return.
The total supply of ANC is 1 billion, in which:
10% is for community funds;
5% is for LP, wherein 5% of the total token supply will be allocated in the first year after the start-up of the protocol to encourage the liquidity providers regarding the ANC/UST trading pairs on Terraswap;
20% is to investors;
10% is to the team;
5% is for Luna’s Staking Airdrop, a total of 50 million ANCs airdropped at genesis to Luna stakers;
10% will be used as Staking reward, a total of 100 million ANCs distributed to LUNA stakers in the first two years after the launch of the protocol;
40% is for borrower incentives, 100 million ANCs allocated annually for incentive loan. This means that 40% of the total supply is designated to support the stabilization mechanism. It is worth noting that the number of incentives will change in order to maintain the balance between depositors and borrowers
Delphi Digital, one of the investors of Anchor Protocol and a famous research institution, has studied the economic model of ANC. They pointed out: “in the short run, the ANC incentive mechanism will increase the number of LUNA stakers. In addition, up to 20% of the annual earnings of UST will also lead to the growth of market demand for UST, which will lead to a short-term liquidity shortage of LUNA. In the long run, Anchor will help break the reflexive cycle of bear market cycles by providing risk-free interest rate of digital assets for the algorithm stabilized currency asset UST.”
III. Financing Situation
On March 17, Anchor Protocol raised a total of US $20 million, with the participation of Arrington XRP capital, Accomplice, Hashed, Galaxy Digital, Pantera Capital, AngelList founder Naval Ravikant, DeFi alliance, Delphi Digital, Dragonfly Capital, Jump Trading, Alameda Research, IDEO CoLab Ventures and Rockaway Blockchain Fund.
According to Do Kwon, founder of Terra Money, the price for early investors to buy ANC is US $0.1 per token, which can be linearly released within 6 to 12 months; the public offering price is US $0.05, which is unlocked.
IV. Secondary Market
At present, the price of LUNA on March 31 was 469 USDT, where the circulation volume was 46.87 million pieces, and the circulation market value was 219 million USDT, at a ranking of 256th. Currently launched on MXC Exchange and other platforms.
V. Application Scenario Analysis of Anchor
The practical scenarios of ANC come from:
1. Governance: ANC stakers can use the relevant digital assets to vote to change the relevant parameters in the system (including Anchor Rate), and can control the community fund pool (accounting for 27.8% of the total supply of ANC).
2. Buyback earnings: part of the earnings generated from the Anchor Platform staking will be used to purchase ANC on Terraswap and distributed to the ANC stakers.
3. Collateral incentives (e.g. bLUNA).
4. ANC/UST liquidity rewards.
ANC’s selling pressure comes from:
1. Selling pressure of private sale
2. Selling pressure of public sale
3. Possible cash out by teams and foundation