aUST to UST exchange rate not 1:1

Why is aUST:UST exchange rate anything other than 1:1?

Good question.

The exchange rate between aUST and UST is not supposed to be 1:1; rather, the exchange rate is supposed to be constantly increasing (at ~20%/year). Therefore, the amount of aUST you hold does not directly indicate the amount of UST it is worth; instead, the same amount of aUST will be worth 20% more UST in a year.

It is better to have a new token (e.g., aUST) represent your share of a pool–similar to how LP tokens represent a share of a liquidity pool–rather than periodically increase amounts or distribute rewards. This simplifies the mechanics and saves on on-chain computation and transaction fees.

As block-rewards are distributed (as UST) to bAsset holders, the smart contracts holding borrowers’ bAsset collateral allocates some of those rewards to the UST-deposit pool. This is how the pool grows over time, and so your share will become more valuable over time.

I hope that is clear.

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Thanks for the response. That does make sense, though I admit I had to read it through a few times :grinning_face_with_smiling_eyes:

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Thanks, I learned something here!
@cpinter10 , my improvement proposal would be that this helpful explanation should be added to a “Help” link on the anchorprotocol UI somewhere because I’m sure others, like me, also may be wondering how this value accrual works under the hood.
Thanks

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Thank you. I’m learning everything I can about as many #Terra protocols as I can.

You welcom we all wanchor in the doc(k)s no worry mate

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