Anchor Protocol Produce a Stable Interest Rate of 20 % for UST Savers

Borrowers on the anchor protocol must deposit staked Luna or staked ETH to borrow UST. On Anchor Protocol staked Luna is referred to as Bonded Luna or b-Luna and staked ETH is referred to as Bonded ETH or b-ETH. B-Luna is created by depositing regular Luna into a special smart contract on the Anker protocol that delegates the deposited Lunar to whitelisted.

Verified validators on Terror this Luna is locked for 21 days as per the standard staking lockup meanwhile b-ETH is created with the help of another crypto project called Lido Finance.

Which makes it possible to tokenize staked ETH so that it's tradable on the Ethereum blockchain for context any ETH staked on the beacon chain is currently locked until Ethereum transitions to proof of stake Lido Finance's staked ETH or st-ETH is locked in a special smart contract on the Ethereum blockchain. Then mints a corresponding amount of b-ETH on the Terra Blockchain for use in the Anchor Protocol.

b-ETH can be withdrawn and converted back to st-ETH at any time and herein lies the secret source the staking rewards from the b-Lunar and b-ETH deposited by borrowers as collateral on the Anchor Protocol are actually earned by the Anchor Protocol. Itself note that this is in addition to the interest borrowers are paying on any UST they borrowed.

Staking rewards on terror are around 9 percent per year on Ethereum's Beacon chain the staking rewards are currently around 5 percent per year. There's currently around 3.2 Billion dollars of b-Lunar and around 650 million dollars of b-ETH deposited by borrowers on the anchor protocol that's around 3.9 Billion on the staking side.

On the borrowing side there's currently around 1.8 Billion dollars of UST that's been borrowed and borrowers are paying around 13 per year on that UST this means that there's a total of 5.7 Billion Dollars of interest bearing assets on Anchor Protocol.

The total interest rate on this amount is 10. This means the Anchor Protocol itself is generating 570 Million dollars every year in staking rewards and interest on UST debt. Some quick Math's tells you that 570 Million is enough to pay the promised interest rate of 20 for up to 2.85 Billion UST at which point the Anchor Protocol would break even this promised interest rate is known as the Anchor Rate and it is set by community governance using the ANC Token.

Any additional income made by the Anchor Protocol is put into the yield reserve which consists of UST. The UST in the yield reserve is used to pay out additional interest to UST lenders. When the Anchor Protocol isn't generating enough income to maintain the Anchor Rate which is again 20. A portion of the yield reserve is also used to buy ANC to ensure that the token increases in value as adoption of the protocol increases at least in theory. This is important because ANC issuance is how the anchor protocol incentivizes borrowing and borrowing is important because the Anchor Protocol generates income from the b-Luna and b-ETH deposited by borrowers. As well as the interest being paid on any borrowed UST ANC issuance is why you can currently earn around 1 percent per year by borrowing UST on anchor protocol even though you technically owe 13 per year on the UST you borrowed.