What Is Lido Bonded LUNA (bLUNA)?
Anchor is a savings protocol that accepts Terra deposits, allows instant withdrawals and pays depositors a low-volatility interest rate. To generate yield, Lido Bonded LUNA lends out deposits to borrowers who put down liquid-staked PoS assets from major blockchains as collateral. Anchor stabilizes the deposit interest rate by passing on a variable fraction of the bAsset yield to the depositor. It guarantees the principal of depositors by liquidating borrowers’ collateral via liquidation contracts and third-party arbitrageurs. They believe that the provision of a stable interest rate to depositors is a necessary feature of a savings product with broad appeal.
Anchor thus overcomes one of the key limitations of Compound and Maker as savings products the highly cyclical nature of deposit interest rates. Beyond offering low-volatility yield, Anchor is an attempt to give the main street investor a single, reliable rate of return across all blockchains. The plethora of staking products, each with varying terms and yields, makes DeFi inaccessible and unappealing to average investors. By aggregating block rewards from all major PoS blockchains, Anchor aspires to set the blockchain economy’s benchmark interest rate. The rest of the paper is organized as follows.
Lido Bonded LUNA start by introducing the concept of a tokenized stake in a PoS blockchain (bAsset). In the following section they cover the basics of the Anchor money market, which serves as the building block for the savings protocol. Next introduce the Anchor Rate as a benchmark interest rate, and propose a mechanism that stabilizes the deposit interest rate at that benchmark. After that cover the liquidation mechanism that implements Anchor’s principal protection. In the last section discuss a number of applications of Anchor money markets beyond savings.
Lido Bonded LUNA Storage Key Points
|Coin Name||Lido Bonded LUNA|
|Source Code||Click Here To View Source Code|
|Explorers||Click Here To View Explorers|
|Twitter Page||Click Here To Visit Twitter Group|
|Whitepaper||Click Here To View|
|Official Project Website||Click Here To Visit Project Website|
One of Lido Bonded LUNA core primitives is the bAsset (bonded asset) — a tokenized stake on a PoS blockchain. A bAsset is a token that represents ownership of a staked PoS asset. Like the underlying staked asset, a bAsset pays the holder block rewards. Unlike the staked asset, a bAsset is both transferable and fungible. Users can therefore transact with bAssets with the same ease as the underlying PoS asset. In summary, a bAsset allows the holder to earn block rewards while maintaining the liquidity and fungibility that staked assets forego.
bAssets are a central component of Anchor – they will soon explain their key role in offering a stable interest rate to Terra deposits. The precise mechanism of bAssets involves intricacies that are beyond the scope of this paper. They will be releasing a separate technical specification for bAssets that will cover the precise mechanics. For the purposes of Anchor assume the existence of a tokenized staking smart contract that adheres to the above properties.
The Terra Money Market
The core building block of the Anchor savings protocol is the Terra money market – a WASM (Web Assembly) smart contract on the Terra blockchain that facilitates depositing and borrowing of Terra stablecoins (TerraUSD, for instance). Lido Bonded LUNA money market is defined by a pool of Terra deposits that earns interest from borrowers. Borrowers put down digital assets as collateral to borrow Terra from the pool. The interest rate is determined algorithmically as a function of borrowing demand and supply, which is encoded by the pool’s utilization ratio (fraction of Terra in the pool that has been borrowed).
Borrowing from the Terra money market is as straightforward as locking up collateral in exchange for a loan. The main parameter of a debt position is its borrowing capacity the maximum amount of debt an account can accrue. An account’s borrowing capacity is determined by the amount and quality of locked-up collateral. Lido Bonded LUNA defines a loan-tovalue ratio (LTV) for each type of collateral, which indicates the fraction of a collateral asset’s value that contributes to a debt position’s borrowing capacity. LTV ratios range from 0 to 1 and are a function of an asset’s volatility and liquidity. Stable, liquid assets will have high LTV ratios, while volatile illiquid assets will have low LTV ratios.
Algorithmic Interest Rates
Anchor uses an algorithmic interest rate algorithm to determine depositor and borrower rates for Terra based on borrowing demand and supply. The key input to the algorithm is the Terra pool utilization ratio. The utilization ratio represents what fraction of Terra in the pool is borrowed. The interest rate algorithm charges borrowers more and pays depositors more as the utilization ratio increases. On the other hand, as the utilization ratio decreases, the borrower pays less interest, resulting in lower interest for the depositor. Lido Bonded LUNA algorithm lowers borrower interest to incentivize borrowing when the utilization ratio is low, and increases borrower interest to disincentivize borrowing when the utilization ratio is high.