Observations

• Current borrowed amount (as of 3rd of February 2022) stands at ~$1.3B.
• Borrowed amount has increased at a steady pace from March to December 2021.
• Since December till now, borrowed amount has declined from ~$2.1B to $1.3B, a massive 40% drop.

Observations

• Currently, total deposit stands at $5.1B
• Since Anchor launch in March, deposits into Anchor grew at the steady pace. However since Nov'21, deposit amount grew at an exponential pace, from 1.8B to over $6.2B at its peak in Jan'22.
• Between 25 to 31 Jan, deposit drop by $1B, from $6.2B to $5.2B, probably due to users pulling out from Abracadabra Degenbox strategy.
• Despite the recent drop in deposits, growth in deposits clearly outpaced borrows which is clearly unsustainable in the long run.

Observations

• Current collateral value on Anchor (as of 3rd of February 2022) is about $3.2B.
• Between July and December 2021, cumulative collateral value on Anchor has seen exponential growth. However, since the peak in December, collateral value has slowed and trending sideways.

This dashboard aims to understand how Anchor Earn derives its Earn APY and if it is sustainable. We will look into how Anchor generates its revenue from Anchor Borrow and how much is needed to pay out to Anchor Earn depositors.

Anchor Revenue

Anchor Protocol derives it revenue mainly from 2 components

1. Staking yield
2. Borrow APR

1. Staking yield

For a borrower to borrow UST from Anchor, one has to deposit a whitelisted yield bearing POW asset (bLUNA or bETH) into anchor as collateral. Underneath the hood, the staking rewards from the collaterals will be sold in the money market.

First, let's take a look at the total collateral value on Anchor over time.

In the next few charts, we will look at the breakdown of bLUNA and bETH collateral amount and value and see how they change over time. This could provide us with different perspective of the underlying trend for each collateral asset.

Observations

• 91.5% of collateral value is in bLUNA as compared to bETH of 8.5%
• bLUNA collateral saw steady growth in value between Mar launch to Dec 21.
• Since bETH was accepted as collateral, bETH collateral amount has saw quick growth from less than 100k bETH in Sep'21 to 194k bETH in Jan'22 or a 2x growth in 3 months.
• bLUNA collateral amount on the other hand has seen a decline from ~70M bLUNA in Sep'21 to 58M bLUNA in Jan'22 or a 17% drop.

Daily revenue from staking yield

Assuming staking yield of 8.7% (from terra station) for bLUNA and 4.6% (from lido.fi) for bETH, we can estimate the revenue generated from each collateral asset below.

Daily revenue from bLUNA -> 8.7% * $2.75B / 365 = ~$655k

Daily revenue from bETH -> 4.6% * $380M / 365 = ~$48k

Total daily revenue from bLUNA and bETH -> ~$700k

2. Borrow APR

Similar to traditional borrowing market, Anchor borrower has to pay an interest on their borrowings. Currently the borrow APR is around 11.55%.

Daily revenue from borrow

The massive decline in borrow is concerning. Nevertheless, let's do a estimation of the revenue generated from the Anchor Borrow assuming $1.3B borrowed and 11.55% borrow APR.

Daily revenue from borrow -> 11.55% * $1.3B / 365 = ~$300k

Total revenue generated from collateral and borrow

By adding the total revenue generated from collateral provided by borrowers and the interest from borrows, we can estimated the total revenue collected by Anchor below.

Total Daily Revenue -> $700k (earnings from collateral) + $300k (earnings from borrow) = ~$1M

Anchor Expense

The revenue generated from Anchor borrow would be used to pay for Anchor expense which is the 19.5% interest payed to depositors of Anchor Earn. How much are the deposits and how much are needed to pay for the interest? Let's take a look at each of them.

Expense from Anchor Earn Assuming that current rate of Anchor Earn of 19.5% on deposits and a total deposits of $5.1B, we can estimated the Anchor daily expense below

Daily expense -> 19.5% * $5.1B / 365 = $2.7M

Revenue & Expense calculation

Lastly, let's calculate the APY based purely on the revenue generated by Anchor. By subtracting Anchor expense from revenue, $1M (revenue) - $2.7M (expense), we can deduce that Anchor is drawing into its reserve (currently at $24M) at a daily rate of $1.7M. At this pace, Anchor reserve will be drawn down to 0 in about 14 days.

~7.39% APY from revenue

Calculation of APY using Anchor revenue and expense below,

APR = Revenue / Total Deposit / 365 Days

APR = $1M / $5.1B / 365 = 7.15%

APY = 7.39%

I believe the drop in bLUNA collateral amount is mostly due to the decline in NET APR on the borrow side. Users might not be tempted to borrow more or pull their funds out from borrow as they did not see value in borrowing if the NET APR is low or negative.

bETH on the other hand did not see the same drop in collateral amount during the same time period. This suggest that users putting bETH as collateral did not mind paying a small interest to borrow. Looking at this behavior would also suggest Anchor to add more collateral assets so as to attract this group of users.

In conclusion, Anchor Earn would be able to provide 7.39% APY purely from revenue generated from the borrow side without drawing down from the reserve.