Can someone explain borrow net APR with an example?
The way I’m reading these numbers on the borrow page is that: If I borrow let’s say 100 UST, I would owe 31.5% APR on the principle but I would be making 121.55% APR on the principle ANC rewards (As the borrower of UST). How would it make sense for me to borrow and literally make free money from ANC rewards. an someone clarify if this is correct and what I am missing. I do not see an ANC distribution calculation anywhere in their documentation.
Net APR 121.55 %
Borrow APR 31.5%
Distribution APR 153.06%
Yes you are reading it correctly, you “earn” while borrowing. At least for now while there are incentives in form of the ANC rewards, this will go on for 4 years. I use quotes for “earn” because you pay interest in UST but earn in ANC. If you borrow 100 UST and the Distribution APR is 153%, then this means you will get ANC tokens worth 153 UST based on the current price. You will pay 31.5% borrowing rate on the 100 UST, so 31.5 UST. Net APR 121.5% (153 - 31.5). Keep in mind that this APR fluctuates and is not meant to be sustainable in the long run. The incentives are there just to kickstart adoption and reward the early users.
Screenshot from Anchor Token (ANC) - Anchor Protocol
Hi, trying to understand long term viability of anchor
Willl the 30% APR remain that high once the reward incentives run out? If yes, how will anchor continue to attract borrowers?
It will depend on what other rates are offered in the crypto space at that time. The incentives scale up over the next 4 years, so this is really a question that will be heavily examined in 2024/2025. If other protocols are offering higher rates on their borrow in 2025 then the viability will still exist. Right now it’s very difficult to speculate since this space is so new.