Anchor is a decentralized savings protocol that leverages yield bearing PoS assets that are posted as collateral to borrow against in order to generate a stable yield on Terra stablecoin deposits. The protocol offers a low-volatility yield on Terra stablecoins by defining a money market between lenders looking for stable yields and borrowers who lock up bonded PoS assets (bAssets) as collateral to borrow against. Anchor governance voters are charged with setting the maximum loan-to-value (LTV) ratio on each bAsset for borrowers before liquidation occurs, which is currently set to 80% and 75% for bLuna and bEth respectively.
Anchor sustains its business model through interest income on outstanding loans combined with staking yields from the bAssets provided by borrowers. When there is excessive demand for borrowing in relation to Terra stablecoin lenders, any surplus revenue is added to a yield reserve. When there is insufficient borrowing demand as it relates to Terra stablecoin lenders, the revenue shortage to pay out the necessary yield to lenders is drawn from the yield reserve.
Lenders of Terra stablecoins receive aUST tokens to represent their share of the pool. Depositors can redeem their aUST tokens at any time to receive back their initial deposit along with their accrued interest.
Anchor is an open-source and permissionless protocol with a Savings-as-a-Service SDK that enables any third party to integrate its services with just a few lines of code. Anchor aims to become the benchmark interest rate in the realm of digital assets. However the sustainability of its model is often questioned by critics.