Here’s your chance to learn more about Anchor Protocol, one of the biggest reasons why Terra DeFi keeps growing! Learn more about it in our “What Is Anchor Protocol?” guide.  Covered: What is Anchor Protocol? Who Created It? What is ANC? Where To Buy ANC? What is Anchor Protocol? Anchor Protocol is a Decentralized Finance […] The post What is Anchor Protocol? appeared first on CryptosRus.

What is Anchor Protocol?

Here’s your chance to learn more about Anchor Protocol, one of the biggest reasons why Terra DeFi keeps growing! Learn more about it in our “What Is Anchor Protocol?” guide. 

Covered:

  • What is Anchor Protocol?
  • Who Created It?
  • What is ANC?
  • Where To Buy ANC?

What is Anchor Protocol?

Anchor Protocol is a Decentralized Finance (DeFi) protocol built on Terra. With over $16 billion worth of value locked in, it constitutes more than half of the DeFi activity in the Terra ecosystem. Needless to say that Anchor is the poster boy of Terra. Anchor was primarily created to increase the demand for Terra’s stable coin UST. As things currently stand, more than 70% of the total circulation of UST is locked up in Anchor. This shows the massive confidence this project has generated for UST and indeed has contributed to the overall increase in the value of LUNA, which is the native token of the Terra blockchain. In terms of marketcap, Anchor Protocol is currently the world’s 3rd largest DeFi protocol.

Who Created It?

Anchor Protocol was created by Terraform Labs (TFL), which is the parent company of the Terra blockchain network. As such Anchor Protocol is a Terra-based application. Anchor Protocol was created as part of the larger vision of the CEO of TFL, Do Kwon. The vision was to create a complete decentralized financial structure by integrating three of its primary financial primitives. The way this would work is that payments would be made through UST, Savings through Anchor, and finally investing could be done via the Mirror protocol.

The aim behind the creation of Anchor was to increase the demand for UST. This was done by incentivizing lenders through a lavish 20% yield. Similarly, it also offers users to traditional finance to integrate with DeFi through an API. By using this API, fintech platforms, B2B businesses, and exchanges can integrate with Anchor, and offer interest-bearing savings accounts.

Recommended: What’s Going On With Terra In South America?

How it Works?

Anchor Protocol is utilized as a money market by borrowers and lenders of stablecoins. Lenders can deposit stablecoins on the protocol, and earn rewards in the form of interest. The borrowers on the other hand can borrow these stablecoins. In order to borrow, users need to stake their crypto assets as collateral. For example, currently, only LUNA and ETH can be staked by the users as collateral. These assets when staked as collateral, are regarded as bonded assets, or bLUNA and bETH. These bonded assets are locked up, and users can borrow UST at the borrowing limit prescribed by the protocol.

Anchor utilizes a liquid staking mechanism. What this means is that borrowers can also earn rewards based on the assets that they have staked, and these rewards are liquidated by the protocol into UST. This increases the amount of UST in the protocol, and thus allows for the lenders to earn greater yields. There are plans to integrate other Proof of Stake (PoS) derivatives on the platform including, bDOT, bSOL, and bATOM.

When launched, Anchor claimed to offer a 20% yield to its lenders. While this may seem too good to be true, it is in fact real. Theoretically speaking, Anchor can generate up to 24% yield due to the high LUNA staking yield and the maximum borrowing limit. Similarly, the loans given by the protocol are overcollateralized which leads to higher staking rewards. However, Anchor fixed it at 20%, in order to make the protocol dependable and sustainable. This was changed again in March 2022, as a proposal was adopted by the community, to implement a 1.5% change in the yield each month. This change can be both an increase and a decrease depending upon whether the reserves of the protocol increase or decrease.

Recommended: How To Earn 20% On UST Stablecoins With Anchor Protocol

What is ANC?

The Anchor Token or ANC for short is the native cryptocurrency of the Anchor Protocol. It is primarily utilized as a governance token, which means that holding ANC entitles users with the right to propose changes, and vote on them. These changes can range from anywhere between how to spend the community pool, changing the parameters, and even modifying the interest rates offered by the protocol. In addition to being used as a governance token, ANC can also be staked by users to earn rewards.

Like other tokens of the Terra ecosystem, ie LUNA, and UST, ANC is also available on multiple chains. These include the Terra blockchain, Ethereum, and The Binance Smart Chain (BSC). 150 million ANC tokens were released at the start of the project, about 50 million of which were airdropped to LUNA stakers, while 100 million were deposited in the Anchor community fund. In addition to this, almost $10 million were raised in a private token sale in March of 2021. The plan is for new ANC tokens to be released into circulation over a period of 4 years. Each year the number of tokens released will be decreased, and this process will continue until a total of 1 billion ANC tokens are released.

Concerns

Although Anchor offers one of the highest yields for lenders through its protocol, it remains uncertain if it can remain sustainable in the long term. When the project began, it offered a 20% yield to lenders, and this resulted in massive popularity, with over $16 billion in cryptocurrency being locked in. However, Anchor itself has realized that offering such a high yield to users isn’t sustainable, therefore a proposal was made and accepted which made the rate of this yield flexible. Whether this makes the protocol more sustainable remains to be seen.

Recommended: Terra’s Anchor Protocol Is Landing On This Top Blockchain

Where To Buy ANC?

You can purchase ANC through the Binance exchange (international only), similar to buying another cryptocurrency. You can either place a market buy or a limit buy. With a limit buy, you determine the price you are willing to pay, and your order gets filled once the token price reaches your limit price. If you want to get your hands on the token quickly, you can place a market order, where you agree to pay the current price and have your order filled almost immediately. If you are interested in purchasing ANC, you can do so by visiting Binance.

The post What is Anchor Protocol? appeared first on CryptosRus.