Terra Ecosystem Anchor Protocol, Terra stablecoin (including UST), Terraswap (an AMM) and Mirror Protocol are the mainstays of the Terra blockchain, which is a standalone Proof-of-Stake (PoS) network based on the consensus of Tendermint and Cosmos SDK. Anchor facilitates UST Loan for 20% APY and UST Secured Loan. Borrowing of other stablecoins and native tokens from other layer1 PoS chains will be possible in the future.
The deposited stable funds are represented by Anchor Terra (aTerra). The required APY comes from the profit of the staked assets and the reserve is converted into Terra stablecoins and paid to depositors. ANC management currently has an Anchor profit target of 20%. If the reward is not enough to pay for the target profit, then the reserves will be used and the ANC incentives will increase to generate more loans. When other assets become eligible collateral, the target yield will be determined as the weighted moving average of the available collateral.
Anchor Protocol aims to stabilize its deposit rate by regulating the amount of staking rewards paid to borrowers, as well as the use of reserves. When the collateral deposit bonus is not enough to cover the loan APY, the reserves are drawn and vice versa. Depositors are protected by automatically liquidating loans with subprime mortgage risk.
Borrowing stablecoins on Anchor requires users to lock up bond assets (bAssets) as collateral and borrow stablecoins under a protocol-defined loan-to-value (LTV) ratio. The bAsset collateral staking profits, currently limited to bLUNA, accrue in the global collateral pool.
The all-in stablecoin borrowing cost is a function of utilization rate, which represents UST supply and demand in the protocol and return of staking assets. If the yield on staked assets is higher than required to pay the lender target yield, borrowers may actually get paid to borrow, even before taking into account the allocation of any ANC rewards.
bLUNA the first collateral accepted from Anchor was bLUNA, the collateralized version of Terra's native token. The locked bLUNA generates rewards for the authorizers and validators to which it is bound. BLUNA cannot be freely traded and is locked in the ecosystem until it is fully untied, which takes 21 days.
LUNA is also the backing token for the Terra stablecoins. Minting Terra stablecoins like UST require LUNA burn. If the stablecoin falls below its anchor, arbitrageurs can buy the stablecoin below its anchor and redeem it for the indexed LUNA value.
Use of Native tokens in the ecosystem:
Anchor is a decentralized savings protocol offering low-volatile yields on Terra stablecoin deposits.