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Introduction to Anchor Protocol

Table of Contents

Due to the high volatility that is ever-present in the crypto markets, investors have been looking for more stable and secure yields and Anchor protocol has emerged as a possible solution to this problem. Currently there is close to $6 Billion of assets locked in this protocol so it is probably worth giving a closer look.

What Is Anchor? #

Anchor is a savings/lending protocol running on the Terra blockchain and accepting deposits in Terra stablecoins, Luna or ETH. Instead of focusing on incentivizing liquidity with various farming opportunities, Anchor uses the deposited funds to participate in incentivized activities across many other proof-of-stake blockchains and shares the revenue with the depositors.

Through this model Anchor is aiming to become a great savings protocol for those that want to save their crypto in stablecoins and earn interest while doing so.

The anchor ecosystem consists of borrowers, lenders (depositors), liquidators, liquidity providers and oracle feeds.

Depositors can also take loans out based on their deposit while liquidators will repay those loans once the liquidation threshold has been met. Liquidity providers earn trading fees for depositing funds in the ANC-UST liquidity pool while also providing enough liquidity for large trades to take place. All of this is being bootstrapped by a Terra account (oracle) that is responsible for providing accurate price feeds for bAsset collateral.

What Is $ANC Token? #

$ANC is the native token of the Anchor protocol that is also used for governance and on-chain voting. By design it is meant to capture a portion of Anchor’s performance fees. This should, in-theory, make the ANC token value as the protocol continues to acquire more assets under management.

How To Use Anchor Protocol? #

Just like all other decentralized protocols, Anchor will require you to have a WEB 3 wallet to interact with it. For Terra, you will need the Terra Station extension and some Luna tokens.

Once you have the wallet set up, you will need to transfer some Luna tokens into it. This can be done by bridging them over from mainnet using the Terra bridge or finding a centralized exchange that allows direct withdrawals to the Terra network.

Once you have everything set up go to the Anchor web app, connect your wallet by clicking on the button in the top right corner of your screen and choose which service you want to use on the protocol.

Earn allows users to deposit UST and earn roughly 20% APY on their deposits.

Borrow enables you to take out loans based on your bonded funds. To do this, deposit your Luna tokens in the Bond tab, the protocol will give you some bLuna tokens as proof of deposit and you can then use the Borrow option to take out a loan based on your collateral. Apart from Luna, loans can be taken out based on ETH deposits as well.

Governance is where depositors can earn interest on their ANC-UST LP tokens and stake ANC tokens for passive rewards.

Conclusion #

Anchor can be considered as just another lending platform but thanks to the unique yield generating strategies it is one of few places where stablecoin holders can earn significant yearly returns on their assets. The protocol also tries to extract as much value as possible for ANC token holders which is not the case for many other lending protocols in the industry.

Updated on December 17, 2021
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