Anchor Protocol: A Savings Protocol Offering Up To 20% APY

What is Anchor Protocol?

Anchor Protocol is a savings protocol based on the Terra blockchain that provides its users with low-volatile up to 20% yields. The platform was built by the South Korea-based Terraform Labs and launched on March 17, 2021. Initially, Anchor protocol helped to increase the demand for UST, which is Terra’s USD-pegged stablecoin, and its ultimate goal is to be the interchain protocol where users can borrow layer-1 native tokens. To learn more about Terra, read our Terra Ecosystem Overview: A Guide for Newcomers.

How does Anchor Protocol work?

Anchor protocol serves as a money market between lenders and borrowers of stablecoins. The lenders can deposit their stablecoins on the platform for borrowing and earn interest on them. The borrowers, in turn, can borrow these stablecoins by providing stakeable assets as collateral. These assets are regarded as bonded assets, and currently bLUNA and bETH are the bonded assets that can be used as collateral. The bonded assets are then locked up, and UST is borrowed against them at the borrow limit defined by the protocol.

How to earn using Anchor protocol?

There are several ways to earn with Anchor, and they include:

Are there any risks associated with using Anchor protocol?

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.

Conclusion

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.

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