Explaining Anchor Protocol - Does It Offer Exactly What It Promises?
2021-12-12 | Daniel Smith
What exactly is the Anchor Protocol?
Anchor System is a Terra blockchain
-based savings protocol that offers its members low-volatile 20 percent returns. Terraform Labs, situated in South Korea, created the platform, which will go live on March 17, 2021. Anchor protocol first served to generate desire for Terra's USD-pegged stablecoin, UST, and its final purpose is to be the interchain protocol where consumers may loan layer-1 native tokens.
How can the Anchor Protocol function?
Anchor protocol acts as a financial market for stablecoin
borrowers and lenders. The lender can store stablecoins on the platform and collect a return on them. Borrowers can then use stackable assets as security to loan these stablecoins. These assets are known as bonded assets, and LUNA
is presently the sole bonded asset that often included security. The bonded asset is subsequently tied away, and UST is borrowed against it at the protocol's LTV ratio, which is presently fixed at a maximum of 40%. Anchor Protocol employs a liquid staking technique. Borrowers' staking earnings on LUNA are converted by the protocol into UST for depositors, enabling users to receive a targeted yield of up to 20%.
How can I make money utilizing the Anchor protocol?
There are various methods to generate money using Anchor, including:
: Depositing your UST onto the protocol is the simplest method to profit. The protocol advertises itself as a savings product, and no competing DeFi platform actually competes with a 20 percent APY.
: Clients can loan UST by putting up bonded LUNA as security. The payout in ANC tokens is more than the rate of interest on the loan. The actual Net APR may be seen on the borrowing page.
: Customers may also buy and risk ANC in order to gain staking incentives on the Anchor platform and engage in administration. The latest staking APR may be seen on this page.
: It is also easy to acquire incentives by staking
ANC-UST LP tokens and supplying exchange liquidity for ANC. This section contains the real APR.
Is there any danger in utilizing the Anchor protocol?
Anchor protocol, like all DeFi systems, has one big danger that consumers should be mindful of loan liquidation. This can occur when the security's value falls underneath the loan's worth. This is true for all DeFi platforms, thus it is best to loan at an LTV ratio of 45 percent or below, with liquidation at 60 percent.
Various initiatives have been implemented to alleviate the losses, one of which is the addition of a tool to the Anchor desktop that enables customers to enable LTV alerts. You may establish a limit on LTV and be alerted when it is met. This allows Anchor customers to control danger more effectively. It is accessible via desktop browsers using WalletConnect, a Chrome plugin, and View an address with Ledger.
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