Note: All the views below are informal and part of running notes
“As the demand increases and supply decreases — Price increases and vice versa”
Characteristics of a good layer 1 blockchain:
A good Layer 1 blockchain should be fast and cheap to use, full of original and disruptive decentralized applications, and offer positive token economics for holders of the platform’s native currencies.
What are block rewards?
These are the rewards given by each protocol for mining a block.
Anchor:
Background: Developed by the same team as teraa- Terraform labs as a product for savings. Most Liquidity providers have a cyclical nature of returns depending on the exchange activity causing a lack of product for fixed income in the Defi space. Lending and borrowing are done on terra stable coin ie pegged to usd.
Anchor is a saving based defi protocol on top of Terra blockchain.
USP : Fixed returns of 20% APY for stable coin deposits.
BAssets:These are tokens given to users who have staked their assets.A bAsset is a token that represents ownership of a staked PoS asset. Like the underlying staked asset, a bAsset pays the holder block rewards. Unlike the staked asset, a bAsset is both transferable and fungible. Users can therefore transact with bAssets with the same ease as the underlying PoS asset.
How is the rate for borrowing and lending decided?
This is decided with help of a Utilization ratio.
ie Utilization ratio=(total vol of Borrowed deposits)/total deposits in the pool
As the ratio increases, the interest rate to borrow increases resulting in increase in higher payments to lenders. Vice-Versa, as this ratio decreases- borrowing rate decreases resulting in decrease in payment to lenders.
The algorithm lowers borrower interest to incentivize borrowing when the utilization ratio is low, and increases borrower interest to disincentivize borrowing when the utilization ratio is high.
How is this constant rate fixed? How does it work?
A rewind into our current financial markets show that banks or Fed “prints” currency to maintain stable interest rate on bonds calling itself the garunteer.
Coming back to Anchor, it works in similar way but by minting blocks/coins across blockchains to maintain this constant rate.
In Anchor protocol, bAssets which are taken as collateral are used to mint blocks which are shared dynamically between lenders and borrowers.The
Anchor Rate is the resulting diversified average yield of all bAssets used as collateral for borrowing the stablecoin, weighted by the aggregate collateral value of each asset. Anchor Rate plays a foundational role in the Anchor protocol: it is the interest rate target for Terra deposits.
Let a1,a2,…, an be those assets, with yields y1, y2, …, yn and collateral value locked up in open debt positions c1, c2, …, cn, where yields and value are Terra-denominated.
Deposit rates:
where y(t) is the staking yield of the bAsset, C is the average collateral ratio and a(t) is the fraction of the staking yield paid to depositors.
The key to the stabilization mechanism is the adjustment of a(t) to maintain a deposit interest rate that is close to the Anchor Rate AR(t).
Depositor rate is determined by utilization rate, portion of rewards from staking, and collateral ratio.
Net Borrow rate is the portion of the bAsset yield paid to the borrower (inflow), as well as the rate paid by borrower to depositor (outflow). netBorrowRate(t) may be either positive or negative.
How are deposit rates matched with anchor rates:
Anchor rate is the target rate that is to be achieved in the protocol. Depending on the deposit rate blocks minted are given to the depositors to reach the anchor rate.
Returns are always paid in terra while the staking can be any of the pos tokens, hence liquidation from pos token to terra is done at regular intervals.
a(t) which is the ratio of rewards given to depositors changes dynamically. For example : If the deposit rate is below the specified anchor rate, then a(t) increases resulting in higher block rewards to depositors and vice-versa.
ANC tokens:
These are the governance tokens of the anchor protocol.
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.
Tokenomics:
Total of 1,000,000,000 will be supplied and once this is over, wont be supplised anymore. Making this a deflationary token.
Diagram:
https://app.diagrams.net/#G1Mpm-ntD9S1wpwbIf3yHSpg1UAIVqU97w
