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Anchoring The Market To A New Reference Rate

Mar 15, 2021 · 10 min read

By Jonathan Erlich, and Jose Maria Macedo

In this note, we’ll cover the upcoming launch of Anchor and what it means for the Terra ecosystem. While Anchor is an interesting protocol in and of itself, we argue its second-order effects on the Terra ecosystem more broadly, and on LUNA specifically, are even more interesting and currently misunderstood by the market. We will begin by providing an overview on Anchor and its mechanics. With this context in place, we will then highlight its potential impact on LUNA. In the short-term, we believe Anchor will drive a supply-side liquidity crisis for LUNA by both increasing the amount of staked LUNA via ANC incentives and demand for UST via its 20% APR. In the long-term, we argue Anchor helps break some of the downward reflexivity we can expect to see in a bear cycle for UST as an algorithmic stablecoin by providing crypto’s “risk-free rate”.

Money Markets Tailored for Savings

Anchor is a new savings protocol built on top of Terra. The main obje

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