Anchor Protocol is a decentralized money market and savings application built on the Terra blockchain. With no minimum deposits, account freezes or sign-up requirements, Anchor offers frictionless access to its saving services. ANC is the name of the protocol's native token, which is used for staking and governance.
Anchor aims to provide a benchmark interest rate — which it is calling the Anchor rate — for DeFi. The introduction of the Anchor rate is inspired by the low interest rates in the financial market. Central bank policies often artificially suppress interest rates to protect the equities and bonds market. However, low interest rates are harmful to savers, as they lead to the devaluation of money.
The APY of the Anchor rate is currently set to 20%. It takes reference from the inflation, cashflows and macro-connections of proof-of-stake blockchains. The Anchor rate can be changed based on the new staking derivatives in Anchor and governance proposals.
In Anchor's money market, the Anchor rate's 20% APY attracts users to deposit their TerraUSD (UST) in the Anchor protocol. On the supply side, borrowers obtain UST debt by staking assets from major proof-of-stake blockchains as collateral.
Borrowers who stake their assets in the Anchor protocol will receive bAssets — i.e., tokens representing ownership claims of the staked assets. Anchor introduces a one-to-one conversion between bAsset and the underlying staked asset. This stabilizes the value of bAsset collateral and makes bAsset fungible across all staking positions in Anchor protocol. bLuna is the first staking derivative on Anchor, and the team plans to extend the available staking derivatives in the future.
ANC has a total supply of 1 billion tokens, and it will be distributed over a period of at least four years. At the genesis of the Anchor protocol, 15% of the total ANC supply was initially distributed as a community fund and LUNA staking airdrop — totalling 100 million and 50 million ANC, respectively.
Borrower incentives account for the largest portion of ANC's token distribution. 400 million ANC tokens will be linearly distributed over a period of four years. 10% of the total ANC is subject to a four-year vesting period and allocated to the founding team. 20% of the total ANC is subject to a six-month lockup period and a one-year linear vesting schedule, and is allocated to investors.
The design of the ANC token allows users to receive cash flows denominated in ANC. For instance, to maintain a stabilized Anchor rate, the excess yield will be drawn into the yield reserve. A portion of the yield reserve is used to buy back ANC in order to distribute it to ANC token holders, borrowers and liquidity providers based on the ANC token distribution schedule.
Anchor was founded by Terraform Labs — the issuer of the Terra stablecoin and creator of decentralized investment platform Mirror. Do Kwon is the co-founder and CEO of Terraform Labs, who has also appeared on Forbes' 30 Under 30. Kwon was the founder and CEO of Anyfi Inc before he established Terraform Labs in January 2018.
In January 2021, Terraform Labs received $25 million in a funding round led by Galaxy Digital, Coinbase Ventures, Pantera Capital and others.