Putting Expenses Into Perspective: How Obverse Can Increase Anchor Yield By 84%
Why spend money when you can spend future yield instead? Obverse is bringing the capability to take out an advance on future yield to the Terra ecosystem; in the crypto community this is commonly referred to as a “self-repaying loan”. This functionality was popularized by the Alchemix team on Ethereum, but has suffered from steep entry requirements until Obverse.
So, how does it work?
When looking at passive income options it is easy to simply look at APY and not consider expenses. Most people cannot take full advantage of passive income because of their routine living expenses and lack of serious funding on hand. Because of this lack of funding, it is not practical for an everyday user to simply deposit all of their money into a yield generating protocol and expect to live on the interest. But what if a person could take full advantage of passive income without having to have a substantial initial deposit?
Anchor Protocol is the gold standard for passive income, with an APY rate of 19.5 percent (at the time of writing). But, for example, if a person wanted to use passive income to cover their monthly living expenses of 2,000 UST on 19.5 percent APY, they would need to deposit roughly 120,000 UST. However the majority of people do not have 120,000 UST on hand to deposit, and this is where borrowing funds enters the picture. With Obverse, the person in the example only needs to deposit 4,000 UST in order to receive a borrow of 2,000 UST in order to cover their expenses. This 4,000 UST deposit will continue earning interest at a slightly lower rate of 18 percent APY (at the time of writing). Why is this important? Having more funds earning slightly less APY is better than having less funds earning slightly more APY.
Currently in the US, a salary of $66,000 is considered fairly average and a person with this level of income will earn approximately $4,000 each month. If we assume a fairly average living expense (food, rent, etc) of $2,000, then each month the person in the example would have to spend $2,000 on living expenses and only have a remaining 2,000 UST to deposit into Anchor. Using the annual percentage yield formula, the 2,000 UST they deposited at 19.5 percent APY would earn them roughly 390 UST over the course of one year. If they use Obverse they would have a deposit of 4,000 UST earning 18 percent which would earn them roughly 720 UST over the course of the year. In this example the decision to use Obverse instead of directly using Anchor earned the person an extra 330 UST over the course of the year: roughly 84% more yield. Now imagine the additional income if every month they decided to deposit their paycheck into Obverse. Hypothetically, if Anchor continues to hold a strong APY, after a certain period of time, the person’s monthly Obverse deposits could repay their monthly borrows and they will no longer need additional funds to create a new monthly deposit: escaping the wheel. At the time of writing, borrowing 2000 UST from Obverse would repay itself in roughly 2 years and 5 months.
How We Are Increasing Fund Availability
In order to increase fund availability, Obverse has created the ability for users to mine OBVS tokens by depositing UST. When a user deposits UST, they will start earning OBVS tokens. The user can redeem their earned OBVS tokens by clicking Redeem or they withdraw their deposit, which will automatically redeem their earned OBVS tokens. For upcoming launch, in order to increase fund availability and user adoption, we will be increasing the mining rate X10; this means early users will get extraordinary mining rewards!
Why Is Obverse on Terra?
Obverse is opening this product up to the larger blockchain community at low entry costs. Currently this product is offered by Alchemix on the Ethereum blockchain, but at exorbitant Ethereum transaction fees that are unreasonable to the everyday DeFi user. Low transaction fees also create the ability for people to become able to utilize self-repaying borrows for smaller expenses. Terra is a shining leader in the stablecoin space and expected to grow support for many other currencies beyond UST. Terra also has the ability to connect and exchange with many other blockchains through the Cosmos IBC (Inter-Blockchain Communication Protocol). Anchor Protocol is also on Terra and the UST/UST borrowing pair that Obverse uses has high APR and zero risk for liquidation on deposits.
The OBVS Token
The OBVS tokens are useful because they will start accruing fee collections once funds begin to be allocated to the Collector contract. They are also useful for creating and voting on new governance proposals.
Lots more articles to come! We will be releasing our app to Terra Mainnet soon. You can stay connected to future updates by following us on Twitter. For those of you reading now, be sure to take advantage of the token launch specials and airdrops that will be occurring soon.