Anchor Protocol’s governance token, ANC, has gained 23% over the past 24 hours and was trading at $4.95 at press time.
Henrik Andersson, co-founder of Australia-based crypto-asset investment firm Apollo Capital, said that the rally is due to a combination of ANC offering a high annual percentage yield (APY) and talks of new tokenomics.
“Anchor offers among the highest APY for crypto stablecoins which has driven demand of UST,” said Andersson. “At the same time stablecoin yield on aggregator platforms like Yearn and Convex has fallen dramatically to low single digit to low double digits.”
This, in combination with talks of new tokenomics for ANC, might be the reason for the rally, said Andersson.
Anchor is a decentralized money market built on the Terra blockchain that offers UST (Terra’s U.S. dollar-pegged stablecoin) depositors a 20% APY. ANC, Anchor’s inflationary protocol token, offers holders governance rights as well as a percentage of protocol earnings.
Anchor Protocol announced in a Feb. 17 blog post a proposal introducing vote-escrowed ANC (veANC) instead of ANC staking. Vote escrow, which was pioneered by curve.finance, is a mechanism of locking tokens for a preset time period. The longer users elect to lock up tokens, the more weight the tokens might get for governance voting and earning staking rewards.
“ANC would be locked up for up to four years in a contract to mint veANC,” wrote Anchor in the blog post.
“VeANC would mean that ANC would need to be locked in order to achieve the highest possible yield on UST – this could further drive demand for the ANC token,” said Andersson.
“This makes TerraUSD the only stablecoin (with reserve backing) that is fully decentralized,” said Shawn Dexter, DeFi analyst at Quantum Economics, in a telegram chat with CoinDesk. This is because the coin is not issued by a central party, nor are the reserves controlled by a central party (unlike USDT or USDC, for example).
“This was an inflection point for Luna and instantly made most projects on the ecosystem (including Anchor) that much more attractive,” said Dexter.
“The confidence in Anchor Protocol and its prospects for long-term success is dependent on the success and stability of the Terra ecosystem,” added Dexter.
The $1 billion raise along with the fact the reserves are in bitcoin speaks to the long-term prospects of the ecosystem seeing continued development and improvements, according to Dexter. “UST being backed by BTC reserves reduces the fragility of their entire ecosystem during times of market stress and contraction,” he said.
Terra’s LUNA token is up 43% in the last 7 days, trading at around $93.
“Many market participants perceive projects on the Terra ecosystem as a higher-beta trade on Luna, and this could be why we are seeing the stronger projects (on Terra) see their price rally since the announcement,” said Dexter.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.