If I deposit UST in Nexo, for example, I will receive an 11% return paid in UST as income.
If I deposit UST in Anchor Protocol: 1. The UST is converted to aUST. 2. I am not paid 'interest' in aUST, instead the value of aUST simply increases at up to ~20% pa. 3. Upon withdrawing aUST from Anchor, the aUST is converted back to UST, but I will receive more UST than I deposited due to the ~20% pa growth in aUST. The increase in the value of aUST while held is a capital gain ... not income.
The above description shows that while Anchor 'looks like staking', it is somewhat different.
Anchor has significant tax advantages as explained by the following example. 1. Nexo, deposit say 100 UST, receive 11% interest pa paid in UST. After one year must pay tax on the 11 UST income earned. If your tax rate is 45%. the after tax profit for the year = 0.62 x 11 = 7.15 UST. 2. Anchor, take 100 UST, convert it to aUST, which is a different token to normal UST. The value of the aUST will go up by ~20% pa. That is, the number of aUST that you own does not change, just the value of the aUST that you own increases. Hence, you only pay tax when you withdraw, and as a capital gain rather than income. Hence, with the 50% CGT discount after 1 year, the profit will be 20 UST, and the tax is only 50% x 45% = 22.5%. Hence, the after tax profit for the year = 0.775 x 20 = 15.5 UST, which is more than double the after tax profit with Nexo.
It gets better with Anchor, compared to Nexo, for longer time periods because if you leave the funds in for > 1 year (say 2 years for example) the gains will be compounded because tax is only liable when you take funds out of Anchor. Because of the tax advantage with Anchor if you hold it for >= 1 year, the equivalent interest rate is actually approximately 24%, which compares to 11% with Nexo and 0.45% with my local FIAT bank.
The risk with Anchor is > the risk with Nexo, but the risk is low imo ... as discussed in my earlier post on 2-Apr-2022.
