Anchor Protocol is a lending protocol for staking PoS assets to lend $UST. Users can deposit staking credentials saved at PoS staking mining service providers, including Lido ($stETH) , pStake ($pATOM) , and recently updated Benqi ($sAVAX), into Anchor as collateral. Since Terra itself is also a blockchain based on PoS consensus, Anchor also provides a PoS staking mining service to $LUNA stakers, and the $LUNA deposited can be used as a collateral asset. After depositing the collateral assets, users can lend $UST worth up to 80% of the collateral value. Besides, Anchor rewards stakers with its own native token, $ANC. On the other hand, Anchor distributes the PoS mining and loan interest yield from borrowers to $UST depositors.
So where does the 20% APY come from? There are two sources of yield for Anchor, the mining yield generated by the PoS assets staked by the borrower, and the loan interest yield. The latest yields rate of its cooperative PoS staking mining service agreement are Lido (3.9%), pStake (12%), and Benqi (7.2%). According to the data provided by Staking Rewards, the yield rate of staking $LUNA for PoS mining is about 5.9%.
On a cross-sectional basis, these PoS collateral can generate about 340 million of revenue per year for Anchor, addressing an APY of 2.7%. At current interest rates, nearly 3 billion loans can also bring in about 340 million revenue per year. Anchor's total revenue can theoretically only provide an APY of 5.4% on 12.5 billion deposits, and who provides the remaining 14%? It's deducted from Anchor Protocol's reserves, in other words, paid by Terra Foundation LFG (Luna Foundation Guard).
What is $ANC?
The Anchor Token ($ANC) is Anchor Protocol's governance token. $ANC tokens can be deposited to create new governance polls, which can be voted on by users that have staked $ANC.
$ANC is designed to capture a portion of Anchor's yield, allowing its value to scale linearly with Anchor's assets under management (AUM). Anchor distributes protocol fees to $ANC stakers pro-rata to their stake, benefitting stakers as adoption of Anchor increases -- stakers of $ANC are incentivized to propose, discuss, and vote for proposals that further merit the protocol.
$ANC tokens are also used as incentives to bootstrap borrow demand and provide initial deposit rate stability. The protocol distributes $ANC tokens every block to stablecoin borrowers, proportional to the amount borrowed.