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Anchor protocol platform where users can earn as much as 20% APY on your crypto holdings. Cryptocurrency and blockchain technology has come a long way since 2009 when Bitcoin was first introduced. From being merely an alternative currency to fiat money, a whole financial system has developed known as Decentralized Finance (DeFi).

What is Anchor Protocol?

Anchor is a decentralized money market built on Terra that offers UST (Terra’s USD-pegged stablecoin) depositors a stable 20% annual percentage yield (APY). Borrowers can collateralize UST loans using bonded LUNA (bLUNA), Terra’s native token. Anchor plans to expand support to other Proof-of-Stake (PoS) layer-1s such as Solana’s native token, SOL. The protocol earns a return for the depositors by staking borrowers’ LUNA collateral. ANC is Anchor’s inflationary protocol token, offering holders governance rights as well as a percentage of protocol earnings.

Anchor Protocol’s History

Anchor Protocol is a Terra-based application built by Terraform Labs (TFL). Its launch was the realization of TFL’s vision of integrating three primary financial primitives (payments via UST, savings via Anchor, and investing via Mirror Protocol) on the Cosmos SDK-based Terra blockchain.

Anchor Protocol was founded to increase demand for Terra’s native stablecoin, UST, by offering a 20% yield to lenders. It also allows traditional finance participants to integrate with DeFi. Anchor has an API that fintech platforms, exchanges, and B2B businesses can integrate and offer interest-bearing savings accounts.

Technology

Terra Ecosystem Anchor Protocol, Terra stablecoins (including UST), Terraswap (an AMM), and Mirror Protocol are key primitives of the Terra blockchain, which is an independent Proof-of-Stake (PoS) network based on Tendermint consensus and the Cosmos SDK. Anchor facilitates lending UST for a fixed 20% APY and collateralized borrowing of UST. Borrowing in other stablecoins and the native tokens of other PoS layer-1 chains will be possible in the future.

Deposits Deposited stablecoins are represented by Anchor Terra (aTerra). The required APY sourced from the yields on staked assets and the reserve is converted to Terra’s stablecoins and paid to depositors. ANC governance currently sets Anchor’s target yield at 20%. If rewards are not enough to cover the target yield, reserves are used and ANC incentives increase to incentivize more borrowing. When other assets become eligible collateral, the target yield will be set as a weighted moving average yield of the available staked collateral.

Anchor Protocol aims to achieve stability in its deposit rate by adjusting the amount of staking rewards paid to borrowers, along with the use of reserves. When the collateral’s staking rewards are insufficient to cover the lending APY, reserves are drawn down, and vice versa. Depositors are protected by automated liquidations of loans at risk of under collateralization.

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Borrowing stablecoins Borrowing stablecoins on Anchor requires users to lock up Bonded Assets (bAssets) as collateral and borrow stablecoins below the protocol-defined loan-to-value (LTV) ratio. The staking yields from bAsset collateral, currently limited to bLUNA, accrue to the global pool of collateral.

The all-in stablecoin borrowing cost is a function of the utilization ratio, representing the supply and demand for UST in the protocol, and the yield on the staked assets. If the yield on staked assets is higher than required to pay the lender target yield, borrowers may actually get paid to borrow, even before taking into account the allocation of any ANC rewards.

bLUNA Anchor’s first accepted collateral is bLUNA, the bonded version of Terra’s native token. Locked bLUNA generates rewards for the delegator and validator it is bonded to. bLUNA cannot be freely traded and is locked in the ecosystem until it is fully unbonded, which takes 21 days.

LUNA is also the support token for Terra’s stablecoins. Minting Terra stablecoins such as UST requires burning LUNA. If the stablecoin falls below its peg, arbitrageurs can buy the stablecoin below its peg and redeem it for the pegged value of LUNA.

Tokenomics

Token Name: Anchor Protocol
Ticker: ANC
Blockchain: Ethereum, Terra
Token Standard: independent POS network based on Tendermint consensus and the Cosmos SDK
Contract: 0x8290333cef9e6d528dd5618fb97a76f268f3edd4
Token type: Utility, Governance
Total Supply: 1.000.000.000
Circulating Supply: 263,178,963

The Anchor Token (ANC) is Anchor Protocol’s governance token. The ANC token is used as a means to propose how to spend the community pool, change parameters (e.g., LTV ratios for liquid staking derivatives), and vote to include new collateral on the supply side.

ANC also captures a portion of Anchor’s yield relative to the protocol’s assets under management. Anchor distributes 10% of protocol excess reserves (in UST, above the required 20% yield paid to depositors) and 1% of liquidated collateral to ANC stakers. The protocol takes UST earned and swaps it to ANC. Anchor distributes fees to ANC stakers pro-rata to their stake.

ANC is also used as an incentive to bootstrap borrow demand and initial deposit rate stability. The protocol distributes ANC tokens every block to stablecoin borrowers, proportional to the amount borrowed.

ANC, like LUNA and UST, is available on multiple chains including the Terra blockchain, Ethereum, and Binance Smart Chain (BSC). When transferred by the Shuttle bridge (a communication gateway between Terra and Ethereum), tokens will adopt the standard on the chain (e.g. ERC20 for Ethereum).

Launch & Initial Token Distribution

150 million ANC tokens were released at genesis, distributed as follows:

LUNA staking airdrop: 50 million ANC tokens (33.3% of initial supply and 5% total supply) were airdropped to LUNA stakers, snapshotted at block 2179600.
Anchor Community Fund: 100 million ANC tokens (66.7% of initial supply and 10% final supply).

Anchor Protocol also raised a $10 million private round in March 2021.

How To Earn Using Anchor Protocol?

Deposit: The easiest way to earn is to deposit your UST onto the protocol. The protocol positions itself as a savings product, and with a 20% APY, no other DeFi platform truly compares.

Borrow: Users can borrow UST by providing bonded LUNA or ETH as collateral. The reward distributed in ANC tokens is higher than the interest paid for the loan. You can check the exact Net APR on the borrow page.

Stake ANC: Users can also purchase and stake ANC to earn the staking rewards on the Anchor platform and participate in governance. The current APR for staking can be checked on this page.

Provide liquidity: It is also possible to earn rewards by providing liquidity for ANC through staking ANC-UST LP tokens. You will find the actual APR on this page.

Backers

Founders of Anchor Protocol

Anchor Protocol was founded in March 2021 by Terraform Labs, a South Korean fintech company founded by Daniel Shin and Do Kwon. Terraform Labs is also behind the Terra layer-one blockchain that has taken the DeFi space by storm, rising by 17,000% in 2021.

Before launching Terraform Labs, Mr. Kwon was CEO of Anyfi, a startup providing decentralized wireless mesh networking solutions. Moreover, he previously worked as a software engineer for Microsoft and Apple. Mr. Shin co-founded and headed Ticket Monster, a major South Korean e-commerce platform. He also co-founded Fast Track Asia, a startup incubator that helps entrepreneurs build fully functional companies.

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Investors

Verdict

Like all DeFi platforms, Anchor protocol has one major risk that users should be aware of and it is loan liquidation. This can happen when the value of the collateral falls below the value of the loan. This is common to all DeFi platforms so the recommended borrow usage ratio is 75% or even lower.

Anchor protocol is an innovative saving product offering unprecedented APY on stablecoins, primarily UST but gradually including Ethereum-based stablecoins as well. Anchor’s structure ensures that the returns are stable and dependable. It is built on the Terra blockchain, which means better scalability and cheaper fees. In the long term, Anchor is positioned to be sustainable and further drive DeFi adoption.

Find more information about Anchor Protocol

Website: https://www.anchorprotocol.com/

Twitter: https://twitter.com/anchor_protocol

Whitepaper: https://www.anchorprotocol.com/docs/anchor-v1.1.pdf

If you have any questions, comments, suggestions, or ideas about the project, please email [email protected].

DISCLAIMER: The Information on this website is provided as general market commentary, and does not constitute investment advice. We encourage you to do your own research before investing.

VinceH

Coincu Ventures