Last updated: Jun 25, 2022
Anchor is a savings protocol built on top of the Terra blockchain. The platform operates as an automatic money market offering up to 20% APY on low-volatile deposits while also rewarding borrowers of the Terra-native UST stablecoin.
The protocol went live on Terra in March 2021 and quickly became a crucial part of its ecosystem.
Anchor protocol uses staking yields and money markets as well as ANC token incentives and governance to comprise a decentralized income instrument. The governance of the platform is responsible for setting the Anchor rate, which represents a target APY the protocol seeks to pay out to depositors. As described by the Anchor Protocol team, “under the hood” the project implements a classical money market that whitelists collateral for liquid staking derivatives of major PoS blockchains. This collateral earns staking rewards which are the real yield behind Anchor Protocol.
Furthermore, the yield earned by the platform gets stabilized with the Anchor rate through the protocol’s reserves and borrowing incentives. In cases where the yield generated through staking incentives by Anchor Protocol is bigger than the Anchor rate, the excess yield is stored in a UST denominated yield reserve and ANC tokenized incentives to borrowers drop by 15% weekly. When the yield rate is less than the Anchor rate the difference is covered by the reserve funds until depleted and ANC incentives to borrowers increase by 50% weekly until the yield rate converges to the Anchor rate.
Anchor Protocol has four types of users - lenders, borrowers, liquidators, and ANC liquidity providers. While lenders deposit Terra stablecoins to the Anchor money market pools to earn interest, borrowers create bAsset(bonded Assets)-collateralized loan positions and borrow from the Anchor pools. Liquidators’ role is to monitor the existence of risky loans and requires collateral for enforcing liquidations. Liquidators are required to submit bids to the Liquidation smart contract, essentially offering to purchase liquidated collateral in exchange for Terra stablecoins. On execution, the liquidating party receives the collateral tokens while their stablecoins are used to repay the liquidated loan. ANC liquidity providers manage the exchange between ANC tokens and UST by providing liquidity to the ANC-UST Terraswap pool. This liquidity is important to the protocol as ANC tokens are utilized as borrower incentives that affect the stablecoin deposit rate.
As the main AMM on Terra, the Anchor protocol app offers a generous yield for stablecoins depositors. The APY may vary from 19-20% for UST to 16,5% for Ethereum-based stablecoins.
In order to borrow UST stablecoins from Anchor, a user has to provide collateral. This collateral is represented as Bonded Assets (bAssets) and generates yield for the borrower for the time of loan. For now, the only accepted assets for bonding are LUNA and ETH. The loans are issued at an LTV ratio of 40% and this rate may be changed by the community.
Deposited assets are represented in a form of aTerra tokens and rewards are paid in UST. These tokens are redeemable for the underlying assets along with the accrued interest rate from fees Anchor Protocol collects.
An important component of the Anchor protocol architecture is EthAnchor gateway that allows transferring stablecoins from the Ethereum network onto Terra, where assets may be used for staking on Anchor. The list of supported assets currently includes USDT, USDC, DAI, BUSD, as well as wrapped UST.
ANC is a governance and utility token on Anchor Protocol. It is used for staking by members of the community where staked assets allow owners to participate in voting or make proposals
ANC tokens are also issued as rewards for users borrowing UST stablecoins against bLuna collateral. The protocol is designed to allow incentives to be higher than the actual interest rate for borrowing.
A 40% share of the total 1 billion supply of the ANC tokens is set aside to incentivize borrowers in the next four-year span.
Anchor ANC token can be purchased on centralized exchanges like Binance and Huobi.
To understand if Anchor is a good investment and try to make an ANC price prediction, you need to do your own research on the project.
All the data for research is available on the project page on our website: check out the technical features of the project in this review, try to use the app, see if the information about the team is available and the team is open for communication, and using the project dashboard and the ANC price chart, assess the project usage rates as well as the token price movement and the number of its holders.
In April 2022, Inverse Finance was attacked with manipulation of its INV token’s money market on Anchor. The price manipulation caused an increase in the price of INV which allowed the attacker to borrow $15.6 million in various digital assets. The incident made the Anchor Protocol team postpone borrowing on Anchor temporarily until it was ensured user’s funds were safe.
A partnership with the Orion Money DeFi platform opened a way for Anchor users to deposit Ethereum-based stablecoins such as USDT, USDC, DAI, BUSD, as well as wrapped UST via the EthAnchor gateway.
There’s no predefined roadmap for the further development of the Anchor Protocol but the governance forum contains all recent discussions on this matter.
Among the planned upgrades it is worth mentioning the plans to add other PoS networks tokens to be used as collateral for stablecoin loans on the platform, such as bATOM, bDOT, or bSOL. The protocol also aims to add non-USD pegged stablecoins such as EUT, THT, and KRT.
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