Since the advent of Bitcoin in 2009, the cryptocurrency and blockchain space has continued to evolve. The success of the Bitcoin project led to the creation of thousands of other crypto projects. One of these is the Anchor Protocol project, which has shown promise despite being relatively new to the market.
Anchor Protocol is a Decentralized Finance (Defi) platform that pays 20% APY on cryptocurrency investments. It’s attractive. Bet you’re already drooling to learn more about this cryptocurrency.
In this article, we will discuss what the anchor protocol is, its mechanics, and the advantages of the anchor protocol.
What is the Anchor protocol?
Anchor is a decentralized savings protocol that offers low volatility returns on Terra stablecoin deposits. The Anchor rate is backed by a diversified stream of staking rewards from major proof-of-stake blockchains, so it can be expected to be much more stable than money market rates. The Anchor community believes that the stable and reliable source of income in Anchor has a chance to become a cryptocurrency benchmark.
The Anchor Protocol defines a money market between lenders looking to generate stable income from their stablecoins and borrowers looking to borrow stablecoins for collateralizable assets. To borrow stablecoins, borrowers lock up collateral (bAssets) as collateral and borrow stablecoins at a lower credit ratio than defined in the protocol. The diverse stream of staking rewards accumulated in the global collateral pool are then converted into stablecoins, which are then awarded to lenders in the form of stable returns.
The deposited stablecoin is represented by Anchor Terra (aTerra). aTerra tokens can be redeemed for initial deposits and accrued interest by simply holding them to complete interest collection.
Anchor Protocol is a Terra-based application developed by Terraform Labs (TFL). Its launch fulfils TFL’s vision of bringing three key financial primitives (paying via UST, saving via Anchor, and investing via the Mirror Protocol) onto the Terra blockchain based on the Cosmos SDK.
Anchor Protocol was formed to boost demand for Terra’s native stablecoin UST by offering lenders a 20% yield. It also allows traditional financial players to integrate with DeFi. Anchor has an API that fintech platforms, exchanges, and B2B companies can integrate and offer interest-bearing savings accounts.
Anchor combines Mirror Protocol and TFL’s Chai wallet to expand the use cases of Terra-based stablecoins like UST. Chai has already gained traction in Asia as a payments app with Terra’s KRW stablecoin.
TFL sees Anchor as a source of cross-chain liquidity for users looking to borrow a variety of native Layer 1 tokens. It also sets a benchmark for fixed and unleveraged dollar-pegged returns in cryptocurrencies.
Anchor Token (ANC) is the governance token of the Anchor Protocol. ANC tokens will be used to make proposals on using community pools, changing parameters (e.g. LTV ratios for liquid collateralised derivatives) and voting on the inclusion of new collateral on the supply side.
ANC also tracks a portion of Anchor’s revenue in proportion to the protocol’s assets under management. Anchor distributes 10% of protocol excess reserves (in UST, above the 20% return paid to depositors) and 1% of liquidation collateral to ANC players. This protocol converts the received UST into ANC. Anchor distributes fees proportionally to ANC players.
ANC is also used as a stimulus to guide credit demand and initial deposit interest rate stability. The protocol distributes ANC tokens per block to stablecoin borrowers in proportion to the amount borrowed.
Like LUNA and UST, ANC is available on multiple chains, including Terra Blockchain, Ethereum, and Binance Smart Chain (BSC). When transmitted across the Shuttle Bridge (the communication gateway between Terra and Ethereum), the tokens adopt an on-chain standard (e.g. ERC20 for Ethereum).
150 million ANC tokens have been issued, and the distribution is as follows:
LUNA Staking Airdrop: 50 million ANC tokens (33.3% of initial supply and 5% of total supply) were airdropped to LUNA Staker, snapshot at block 2179600.
Anchor Community Fund: 100 million ANC tokens (66.7% of initial endowment and 10% of final endowment).
Mechanism of Anchor Protocol
The Anchor Protocol (ANC) is powered by a set of two mechanisms:
- Trading TerraUSD on the Forex market: Terra Financial Markets are smart contracts built on the Terra blockchain. It allows users to borrow and deposit TerraUSD (UST), Interest-bearing loans from Terra deposits.
To borrow money from the pool, borrowers must pledge digital assets as collateral. The pool utilization is used as a supply and demand indicator to determine the interest rate.
It is referred to as the “anchor rate” in this protocol, the target of interest being the system’s backbone. From the collateralized assets, the Anchor smart contract interactively separates block returns between depositors and borrowers.
- BAsset (Bonded Assets): Tokenized shares of PoS cryptocurrencies known as BAsset Bonded Assets are one of Anchor’s key primitives. Proof-of-stake assets can only be owned by those who hold that underlying asset.
Removable and fungible bAsset owners receive block rewards. These owners can collect block proceeds while maintaining the liquidity and fungibility that the pledged assets lack.
Advantages of Anchor Protocol (ANC)
- Permissionless: Anchor protocols provide permissionless access to public funds. There is no central organization that can freeze or review your account transactions. The protocol runs as pure code, removing all human bias from the borrow-and-borrow equation.
- High Yield: One of the main advantages of the Anchor Protocol (ANC) is its high-yield loan pool. Users can earn 20% APY for providing liquidity to the pool. When you compare that rate to the 0.03%, you earned from a fiat savings account, it’s easy to see why people continue to seek deals to enhance their savings strategies.
- Security: Security is a top priority for users of the Anchor protocol. The network has been audited multiple times by cybersecurity firm Cryptonics. In addition, the community can censor the network’s smart contracts etc., to further investigate the platform.
- DeFi Features: After joining the Anchor protocol, you can take advantage of various DeFi features. Users can deploy ANC and earn passive returns with low risk. They can also secure profits by providing liquidity to credit protocols. You can stake ANC and UST stablecoins.
- Interoperability: Those looking to integrate the Anchor protocol into their dapps and platforms can do so easily and securely. The network provides developers with an API to enable secure integration across different networks.
Where to Buy Anchor Protocol
Anchor protocol can be purchased online (ANC). Here are the top anchor protocol exchanges based on the trading volume: Binance, Gate.io, OKEx, KuCoin, BitMart, MXC, and BKEX.