Anchor Protocol

Terra is growing at an explosive rate. LUNA has outperformed most other cryptocurrencies this month, the only other top 100 that has kept up is SOL. Terra growth is owed to great tokenomics, LUNA/UST burn mechanics, Columbus-5, a major coming upgrade, and anticipation of many novel and exciting projects in the coming weeks.

With this growth are many new Terrans and LUNAtics who are just learning about Terra. I am still amazed by how many people are sleeping on Terra. I see videos and tweets about SOL but LUNA doesn’t seem to have as much traction outside the community, this is good, we still have yet to see the FOMO buys. Even friends of mine who have been into crypto for years are largely unaware of Terra. They hold LUNA for speculation but don’t know about it’s utility or the wider Terra ecosystem.

For all the new Terrans I want to talk about the flagship and my favorite (so far) Anchor Protocol.

What is Anchor Protocol?

Simply put, Anchor is a decentralized savings and lending platform. There are a few core functions of Anchor: earn, borrow, bond and governance. Here is a quick overview, I will go into more detail and explain some strategies later.

1. Earn: Here you can simply deposit UST and earn a 19.5% APY. Many times better than any bank and low risk. Especially with insurance that we will discuss later.
2. Bond: This is where you can bond LUNA to receive bLUNA; bLUNA can be used as collateral to borrow UST. I’ll go more into detail later. There is even a trick to get more bLUNA.
3. Borrow: This is where you can borrow UST. Currently you can deposit bLUNA or bETH, a bonded form of ETH and borrow up to 60% of your collateral.
4. Governance: Here you can stake ANC for voting (and airdrops) or participate in a UST/ANC liquidity pool.

Is it safe?

Anchor is one of the safest protocols out there. The first line of the whitepaper reads,

“Despite the proliferation of financial products, DeFi has yet to produce a savings product simple and safe enough to gain mass adoption.”

This is the goal of Anchor, to create a simple and safe protocol anyone can use. Truly bringing DeFi to the masses through safety and a user friendly interface and low fees.

So what are the risks?

1. Smart contract risk: As with any defi protocol there is a risk of a hack. To counter this Anchor has done multiple audits and has a bug bounty program. There has never been an exploit of Anchor.
2. UST depeg: UST is an algorithmic stablecoin pegged to the dollar. The price of UST is maintained through arbitrage of LUNA and UST. If UST loses peg it can cause losses. Luckily this has only happened a couple times and it quickly regained it’s peg. In my opinion UST is as safe as any other stablecoin. Possibly even more safe because it is not backed by fiat or securities, thus staying out of the cross hairs of the SEC.
3. Liquidation: This applies to those borrowing UST. If your borrowed amount exceeds 60% of your collateral you can be liquidated at a 5% loss to pay your debt. This could happen if you borrow too much and there is a market crash or a significant dip in one or more of your borrowed assets.

If you’re still uncomfortable, insurance can be purchased for Anchor protocol. This provides insurance in case of smart contract exploit or a UST depeg. Links to insurance providers are provided on the webapp. It’s also incredibly cheap, about 2.5% of your insured value a year. I highly recommend this.

Soon Anchor will also be implementing a function to prevent liquidations. Rather than be liquidated your balance will automatically be updated through funds in your wallet.

How can I use and benefit from Anchor?

Here I will outline a few strategies and uses for Anchor. All of them are accessible with far lower fees than Ethereum. Most transactions are around 50 cents on Terra.

Earn

For the risk adverse. First you need UST. UST can be easily purchased on the Anchor webapp. You will be redirected to Kucoin or Bitfinex. Alternatively, you can buy UST with fiat through Transak, link also provided via the webapp. Once you have your UST simply deposit and earn 19.5% APY.

Bond

There are 3 functions here: mint, burn and claim.

Mint is how you get bonded LUNA or bLUNA that is used as collateral. Burn is where you can burn your bLUNA for LUNA, this takes 21 days. Alternatively, you can do an instant burn. The instant burn swaps your bLUNA for LUNA. This will result in some slippage and extra fees. LUNA trades higher than bLUNA, so you lose in the swap. Finally you can claim your LUNA after the 21 day burn. You can also claim your rewards for bonding here.

There is a trick to get more LUNA many overlook. Rather than minting bLUNA on Anchor you can swap LUNA for bLUNA on Terra Station and actually get more bLUNA. For example, at the time of writing if you swap 500 LUNA for bLUNA, you will receive 536 bLUNA. That’s about $1000 dollars profit. The catch is you have to burn it over the 21 days to get the same amount of LUNA back. This is actually a strategy unto itself that some use.

Governance

This is pretty straight forward, any ANC you have bought or earned from rewards can be staked. This allows you to vote on proposals. Be aware that if you vote your ANC is locked until the vote ends. Alternatively you can give liquidity to the UST/ANC liquidity pool. I’m not going to go into how to use an LP. You should learn the basics and know about impermanent loss. Remember to stake your LP tokens. This is another beginner mistake that gets overlooked. Once you provide liquidity the tokens you are given have to be staked, so there are two transactions. Governance staking has lower rates but there is at least one new project that will give an airdrop to governance stakers.

Borrow

Before we get into borrowing let’s quickly talk about bETH and Lido Finance. Lido is a liquid staking protocol. It allows its users to stake ETH via Lido for interest on their ETH. In return you are given stETH that can be used on places like Curve Finance so you can stake but still have liquidity. It can also be swapped on Curve to avoid the long lock up before ETH2.

So ETH > stETH > bETH.

Go to https://anchor.lido.fi/. First stake your ETH for stETH. There is a gas fee for this. If this is your first time you also have to pay an unlock fee. Many new people make this mistake, there are multiple transactions. A one time fee for authorizing the token and then another to stake. Once you receive your stETH you convert it to bETH. There are more fees here. I know this is expensive but once you’re on Terra the fees are fractions of what they are on Ethereum. Simply select how much stETH you want to convert and put in your Terra address. It sends bETH directly to your wallet, no need to use a bridge.

Now that we have bLUNA and bETH we can deposit them as collateral and borrow UST. At the bottom of the “Borrow” page simply click “Provide” for the asset you wish to provide. Now you can borrow. You can borrow up to 60% of your collateral. Be careful here, if there is a crash in one of your collateral assets you could be liquidated for 5% of your loan. Anchor provides a slider and recommends keeping it around 45%, more than enough any normal day. As mentioned earlier there will soon be a way to automatically pay your loan from UST in your wallet if you exceed the liquidation threshold but this isn’t available yet.

You can use your UST to invest in other projects. Personally I invested much of my loan into MINE, the native token Pylon protocol, Terra’s launchpad. You can also invest in ANC or MIR, both really hot alts primed for a breakout. Or you can buy more LUNA. I like to have some LUNA on hand for trades. I also like to keep some UST in case I need to pay off some of the loan to avoid liquidation if an emergency happens.

The Future

It’s good to see Terra growing so well and to have new people coming in. We are primed for continued growth through the next few months. We have already seen major pumps of LUNA, and MINE. I believe ANC and MIR are next. Terra’s goal is to increase UST market cap to $10 billion by EOY. That is about 5x from where we are or 7.5 billion dollars. That means an equal amount of LUNA will be burned. Yes, 7.5 billion dollars of LUNA will be burned… and Ethereum is bragging about their burn rate.

Additionally, we have the launch of Columbus-5. This will mark the launch of dozens of new Terra projects all, increasing demand for LUNA and other Terra tokens. This will also increase the burn rate of LUNA.

Looking forward to meeting the new LUNAtics. Terra is just getting started.

We must construct additional pylons.

$1000 dollar LUNA is programmed.