The days of earning large DeFi yields from staking or lending your cryptocurrency coins are being challenged by the ever-changing form of the crypto space. Still, there are projects, such as Anchor Protocol, looking to maintain the profits that crypto users have become accustomed to.
In the following guide, we’ll look at how the Anchor Protocol works, its advantages and disadvantages, and try to help you understand if this is worth your time and attention.
Tether is the most popular stablecoin at the moment. However, developers behind the coin have struggled to provide documentation proving the coin’s capability of remaining pegged to the U.S. dollar.
Stablecoins are a group of cryptocurrencies that aim to provide price stability. A reserve asset backs these coins. They are particularly championed by crypto investors looking for an alternative to fiat currencies such as the dollar, the euro, or the rupee.
Stablecoins allow bitcoin investors to quickly convert their profits into a dollar-like amount. They can then invest the amount elsewhere or withdraw the money to their bank accounts. Stablecoins are cryptocurrencies that attempt to link their market value to some kind of external reference.
These coins, primarily, enable investors to instantly “cash-out.” This leaves them without worries about how their crypto portfolios may have changed overnight. It’s a way to avoid some of the instability of the crypto markets.
Stablecoins are unchanging because of a collateralization system or an algorithmic mechanism that allows for the buying and selling of the reference asset or its derivatives.
What are stablecoins?
Stablecoins have the advantage of being able to withstand the volatility of the cryptocurrency markets. They also offer great accessibility and mobility. This makes them, essentially stable, decentralized digital currencies.
UST is the largest decentralized stablecoin, at the moment, when judged by market capitalization. After dethroning DAI, an Ethereum-based competitor, UST reached this milestone. According to available information, the market capitalization of UST stablecoin was approximately $200 million as of 2021.
The stablecoin market is one of the fastest-growing sectors of the crypto industry this year. In 2021, there was a 500% increase in market capital for the largest stablecoin issuers over the previous year.
This increase, however, has also come with growing demands for further regularization. It’s important that companies who issue these types of coins make assurances about their capability to continue to maintain price stability.
Anchor Protocol origins
Anchor Protocol was founded in 2020 and is headquartered in Seoul, South Korea. It was officially launched on Mar. 17, 2021. Terraform Labs (TFL) is the company that developed the application. It was designed to work in conjunction with the blockchain and its cryptocurrency, LUNA.
It was TFL’s vision to integrate three primary financial primitives on the Terra blockchain-based Cosmos SDK, including savings via Anchor and payments via UST.
TFL’s plan was to integrate three main directives. This concerned payments being made using UST, savings using Anchor, and investing with the Mirror Protocol. These are all done on the Cosmos SDK-based Terra blockchain.
Due to the volatility in crypto assets’ prices, staking doesn’t seem a suitable option for most people. Anchor is a savings platform. It pays a dividend based on block rewards from important PoS blockchains. Anchor assigns block rewards to assets that are used to borrow stablecoins in order to provide a consistent yield.
Anchor Protocol was established to increase demand. It offers approximately a 20% yield for lenders.
Anchor is paired with Mirror Protocol and TFL’s Chai wallets to expand the range of use cases for Terra-based stablecoins. The protocol’s ultimate goal is to become an interchain protocol that allows its users to access DeFi services in the Terra-Luna ecosystem.
What is Anchor Protocol?
Anchor Protocol is a Terra-based lending and borrowing protocol. It provides UST depositors a 20% annual percentage return. This is known as APY. Borrowers can use bonded LUNA (bLuna) or bonded ETH (bETH) to secure UST loans.
It uses an over-collateralized architecture to allow users to borrow, lend, and earn interest with their digital assets. The protocol also allows for fast withdrawals and pays depositors a low-volatility rate. It is one of the most well-known stablecoins.
The decentralized savings system offers low-volatile returns on Terra stablecoin deposits. Anchor rates are powered by a diverse stream of staking rewards, from major PoS blockchains. With this in mind, they can be expected to be more stable than money markets interest rates.
Anyone can participate in the protocol. Anchor is a promising savings tool. It is also a decentralized protocol. This means that anyone can join it without KYC from anywhere.
What is Earn? How does it work?
The Anchor Protocol is thought of as a genuine savings option for regular households. The idea would be for users to choose the “Earn” option and then collect the interest without further effort. Because of this, the “Earn” option is the central pillar of the project.
Earn allows users to earn Anchor yields on Terra stablecoins. You can deposit and withdraw Terra stablecoins from it, and track your current deposit value, transactions history, current deposit annualized rate (APY), as well as the amount of Anchor interest earned.
The process is simple. Just visit the Anchor Protocol page. Visit the “Earn” section. Once here click on “Deposit” and enter the required crypto details for the deposit.