Guide to Anchor Protocol on Terra — 20% APY on UST
Anchor Protocol is a newly launched savings protocol offering low-volatile yields on Terra stablecoin deposits (UST).
The yield comes from a diversified stream of staking rewards from major proof-of-stake blockchains.
Where does the yield come from?
Anchor Protocol obtains yield from staking, money markets and ANC token incentives.
Governance sets an Anchor rate, which is the target APY to pay out to depositors.
Staking rewards from collateral make up the yield, and yield reserves and borrowing incentivses help the yield converge to the anchor rate.
Anchor Protocol defines two parties where a money market exists:
- A lender looking to earn stable yields on their stablecoins
- A borrower looking to borrow stablecoins on stakeable assets.
To borrow stablecoins, the borrower locks up Bonded Assets (bAssets) as collateral, and borrows stablecoins below the protocol-defined LTV ratio.
The diversified stream of staking rewards accruing to the global pool of collateral then gets converted to stablecoin, and then conferred to the lender in the form of a stable yield.
How to deposit UST into Anchor Protocol?
There are several pre-requisites before depositing:
- TerraUSD (UST) in wallet
- Terra Station Extension
Head over to Anchor Protocol’s Earn page and hit Deposit.
Enter the amount of stablecoins to deposit and hit Proceed.
Sign the transaction with Station Extension.
To withdraw, reverse the steps with the Withdraw function.
Borrowing UST from Anchor with collateral
Users can use the borrow page to borrow UST from Anchor by depositing bAsset tokens as collateral.
Borrows can be made until the loan’s loan-to-value (LTV) ratio reaches the maximum LTV. If the loan LTV breaches above the max LTV limit, your collateral can be liquidated.
Head over to the Borrow page.
Select your bAsset collateral (e.g. bLuna) and click Provide, then enter the amount of collateral to provide. bAssets can be created through a bonding process described below.
Sign the transaction with Station.
Now, with the collateral deposited, head over to the top where it says Borrow.
Enter the amount of UST to borrow.
Sign the transaction with Station.
To repay loan and retrieve collateral, reverse the steps above.
Bonding collateral
Users can bond collateral (creating/minting bAssets) through the Bond page.
For example, to mint bLuna from Luna tokens which is used to deposit as collateral.
Enter the amount of Luna to bond and correspondingly mint bLuna as collateral.
Sign the transaction to bond your Luna tokens.
To redeem/burn, reverse the process using the Burn tab.
There are two types of burns:
- Burn: Burn bLuna through the bLuna protocol and redeem Luna. Redeemed Luna can be withdrawn after the Terra blockchain’s unbonding period. Redemption is done with the current bLuna exchange rate but requires at least 21 days and the redemption amount may be affected by validator slashing.
- Instant Burn: Swap bLuna for Luna through Terraswap, an Uniswap-like automated market marker (AMM) protocol on Terra. This process is instant but may suffer from trade slippage and Terraswap commissions.
Closing thoughts
Anchor Protocol is unique in the sense that it tries to target a stable yield through staking collateral and money markets (lending/borrowing).
It also introduces DeFi to the Terra blockchain and hence, making it more accessible to those who have been priced out by high Ethereum fees.
We hope you found this guide useful.