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What is Anchor Protocol (ANC)?

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Avatar for pandoru1997
Written by   18
8 months ago

Anchor Protocol (ANC) is a DeFi protocol developed on Terra, which uses the LUNA token and UST to provide its users with great staking, farming and saving opportunities.

One of the highest rated protocols within the Terra-Luna ecosystem is Anchor Protocol, a decentralized finance (DeFi) protocol that is focused on creating a savings ecosystem that is accessible, easy to use and, best of all, with low volatility.

This makes this protocol an excellent savings system available to anyone who wishes to participate in it. Moreover, as it is a decentralized protocol, anyone can participate in it, without KYC and from anywhere in the world.

But how did Anchor Protocol start and how does it work?

Origin of Anchor Protocol

Anchor Protocol is a creation of Terraform Labs, the same company behind the development of Terra, so its design is intended to go hand in hand with this blockchain and its cryptocurrency, LUNA. In any case, Terraform Labs launched Anchor on March 17, 2021, as a DeFi ecosystem integrated with Terra-Luna, where the native stable coin is UST (Terra USD).

In this way, Anchor Protocol's ultimate goal is to be an interchain protocol, making it easier for its users to access DeFi services within the Terra-Luna ecosystem. On the other hand, it would also prepare a bridge to Ethereum (known as EthBridge), which would allow it to transfer value between networks and, especially, offer better performance, speed and fees for new users.

Thanks to this, we could enjoy better token diversification thanks to the integration of USDC, USDT, DAI and even BUSD. As a result, every user of the protocol could enjoy a yield between 19.5% and 20.5%, and due to the close relationship with Terra, Anchor could also have integration with stablecoins such as EUT (Terra Euro) or KRT (Terra Won).

How does Anchor Protocol work?

Anchor Protocol is a DeFi protocol that allows users to enjoy a financial lending system based on stablecoins. The idea is simple: a lender deposits its UST in Anchor and this UST is used to make collateralized loans for which it receives interest. On their side, borrowers apply for these loans by blocking a guarantee in cryptocurrencies and once with the loan they can perform the operations they want, until they make the payment along with the corresponding interest. A system exactly like the one used by other platforms such as Aave or Curve.

Currently, Anchor Protocol uses the bLUNA token (a type of wrapped token for LUNA) as its only escrowed asset to be used as collateral (also referred to as bAssets). Thus the borrower must convert their cryptos into bLUNA, lock these tokens to borrow UST. Generally this borrowing is done with an LTV (Lifetime Value) of 40% and the protocol pool is designed to generate a yield of up to 24% interest, of which 4-5% stays on the platform and the rest is delivered to the liquidity providers (the lenders).

In addition, all loans in Anchor are overcollateralized (in the same way that happens in DAI, for example), the intention of this is that the system can have room to take corrections in case of high volatility in the price of LUNA or any other crypto within the system.

Anchor Token, a token for protocol governance

Another important point in the functioning of Anchor Protocol is the existence of Anchor Token (ANC). This token has been designed so that its holders can perform staking with two very clear objectives:

  • 1 Participate in the governance of the protocol, as staking gives them voting power to participate in protocol votes.

  • 2 Allow users to access better earnings within the protocol. These rewards are delivered in ANC tokens and are distributed proportionally to the liquidity provided.

The ANC token has a total supply of 1 billion ANC tokens and 40% of that amount has been set aside as incentives for borrowers over the next 4 years.

How to benefit from Anchor Protocol?

Users can enjoy the benefits of Anchor Protocol in the following cases:

  • 1 By making a UST deposit within the protocol. This allows the system to take this deposit as a savings deposit (just like a bank account) and receive an APR of between 20 and 24%.

  • 2 Through the application for a loan to carry out operations that ultimately allow obtaining some benefit or canceling a debt.

  • 3 Through ANC staking to obtain the rewards offered by the Anchor platform and participate in governance.

  • 4 By providing liquidity to Anchor Protocol and thereby earning the rewards of contributing capital to the ANC exchange, and staking ANC-UST LP tokens.

How to use Anchor Protocol?

The easiest way to use Anchor Protocol is through its Terra Station browser wallet (available for Chrome and Chromium-based browsers) or its Android or iOS wallet. These wallets have the ability to allow connection to decentralized applications on the Terra blockchain.

Once you have installed one of these wallets (we recommend mobile wallets for greater security) all you have to do is access the official Anchor Protocol website and click on "Connect Wallet". You will immediately see a QR code displayed that must be scanned with the app:

After scanning the QR code, a dialog box will be displayed to accept the interaction and, with its acceptance, you will be connected to the Anchor Protocol dApp.

Remember that the wallets must be configured and you must back up the seed phrase they generate to always have a backup of your cryptocurrencies in Terra. If you do not perform this backup procedure, in case it is damaged, stolen or you lose your smartphone or computer (if you use the Chrome extension) you will not be able to recover your account and you will lose all access to your tokens in the protocol. In that extreme case, no one will be able to help you, so take your time to set up the wallet and back it up.

Buying LUNA tokens

The next thing to access Anchor Protocol is to have LUNA tokens at your disposal. For this, the best option is to buy Bit2Me Wallet,Binance,Kukoin the LUNA tokens you need and then pass them to your Terra Station wallet. This way, you will be able to interact with Anchor Protocol without any problems. Remember that Terra addresses start with "terra" so make sure you are copying and using the correct network address for your operation.

Once you have your LUNA tokens in Terra Station you can exchange this LUNA for UST using the Swap option. This way you will have the USTs needed to perform the operation you want in Anchor.

Once the Swap to UST is done, all you have to do is choose in which option you want to participate in Anchor Protocol. You can use the "Earn" option, make your deposit and forget about it, while you watch your investment earn interest without lifting a finger. You can use "Borrow" if you want to ask for a collateralized loan, however, in order to access this system you must first create bAssets using the "Bond" option.

Finally, you can use the "Govern" option for staking on ANC tokens or in the ANC-UST LP pool. In any case, you should carefully study which is the best option for your profile as a user of the platform.

Getting to know a little more about each option within Anchor

Earn

The Earn option is the simplest option of all. Basically what Earn allows you to do is to make a UST deposit for which you will receive interest without having to do anything else. All you have to do is go to this option, click on "Deposit", enter the details of the deposit you want to make and that's it. You will receive the interest in an aUST token that you can then convert into UST and withdraw whenever you wish, without any inconvenience.

Borrow and Bond

As mentioned before, "Borrow" is for requesting loans. To request a loan, you must first generate bAssets (bLUNA or bETH) which you can do in the "Bond" tab. These bAssets will allow you to perform an overcollateralization which you can then use to borrow in UST using the "Borrow" option.

In Bond, you can MINT, Burn and Claim rewards for the bAssets you have within the system. So for example, to request a loan, you first do a MINT of bAssets (using LUNA) and choose the operation validator you want. There are several validators, each one with its own policies, and you will have to study the one you are most interested in in this case. Finally, once you have your bLUNA created, you only have to go to the "Borrow" option and request the credit you need (which is given to you in UST and according to the bLUNA or bETH you have).

If you then want to withdraw, you must pay the credit (using the "Repay" option) and make a withdrawal of the collateral you have deposited. Once the collateral is withdrawn, you must go to the "Bond" option and make a "BURN" of that collateral. At this point you have two options:

  • 1 Direct Burn, which will do the burn and you will have to wait 24 days to receive your LUNA back. This is because your LUNA enters into Terra's staking system. For that reason you must wait that long to release the token along with the withdrawal process (a total of 24 days).

  • 2 Immediate Burn, an option for quick withdrawals for which you must pay some extra commissions.

If the bAssets you have generated rewards through the staking system, you can withdraw them in the "CLAIM" option in Bond. There, you can manage all this system and get the rewards you have generated.

Govern

If all you want to do is participate in governance or improve your reward conditions this is the option to choose. Here you can buy or sell ANC tokens (for governance and improving reward conditions) or staking in the ANC-UST pool. In any case, both options offer quite significant rewards according to the market reality within Anchor.....

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Avatar for pandoru1997
Written by   18
8 months ago
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