What is Anchor Protocol (ANC)?

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

UOne of the most highly valued protocols within the Terra-Luna ecosystem is the Anchor Protocol, a protocol of decentralized finance (DeFi) which is focused on creating an accessible savings ecosystem, 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. In addition, since 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 designed 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 into Terra-Luna, where the native stablecoin is UST (Terra USD).

In this way, the final objective of Anchor Protocol is to be an interchain protocol, which facilitates its users to access DeFi services within the Terra-Luna ecosystem. On the other hand, a bridge would also be prepared for Ethereum (known as EthBridge), which would allow you to transfer value between networks and, especially, offer better returns, speed and commissions for new users.

Thanks to this, we could enjoy a better diversification of tokens thanks to the integration of USDC, USDT, DAI and even BUSD. As a result, any user of the protocol could enjoy a performance of 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 system of loans based on stablecoins. The idea is simple: a lender deposits their UST in Anchor and that UST is used to make collateralized loans for which they receive interest. For their part, borrowers request these loans blocking a guarantee in cryptocurrencies and once with the loan they can carry out the operations they want, until they make the payment along with the corresponding interest. A system exactly the same as that used by other platforms such as Aave or Curve.

Anchor Protocol currently uses the bLUNA token (a type of wrapped token for LUNA) as its only asset on deposit to be used as collateral (also known as bAssets). Thus the borrower must convert their cryptos into bLUNA, block these tokens to borrow UST. Generally, this loan is made with an LTV (Lifetime Value) of 40% and the protocol pool is designed to generate a yield of up to 24% interest, of which between 4 and 5% remains on the platform and the rest it is turned over to liquidity providers (the lenders).

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

Anchor Token, a token for protocol governance

Another important point in the operation 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, since staking gives them voting power to participate in voting on the protocol.
2. Allow users to access better earnings within the protocol. These rewards are delivered in ANC tokens and are distributed in proportion to the liquidity provided.

The ANC token has a total supply of 1.000 billion ANC tokens and 40% of that amount has been set aside as incentives for borrowers for the next 4 years.

How to benefit from Anchor Protocol?

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

1. With the completion of a UST deposit within the protocol. This allows the system to take said deposit as a savings deposit (just like a bank account) and receive an APR of between 20 and 24%.
2. Through the request for a loan to carry out operations that in the end allow to obtain a benefit or cancel a debt.
3. By staking ANC to obtain the rewards offered by the Anchor platform and participate in governance.
4. With the contribution of liquidity to Anchor Protocol and thereby obtain the rewards of contributing capital to the ANC exchange, and stake the ANC-UST LP tokens.

How to use Anchor Protocol?

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

Once one of these wallets is installed (we recommend mobile ones 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 support the seed phrase that they generate to always have a backup of your cryptocurrencies in Terra. If you do not perform this backup procedure, in case your smartphone or computer is damaged, stolen or lost (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 setting up the wallet and backing it up.

Buying LUNA tokens

The next thing to access Anchor Protocol is to have LUNA tokens available. To do this, the best option is to buy Bit2Me Wallet the LUNA tokens you need and then transfer them to your Terra Station wallet. Thus, you can interact with Anchor Protocol without problems. Remember that the directions of Terra, begins with "terra" So watch correctly that you are copying and using a 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. In this way, you will have the UST necessary to carry out the operation you want in Anchor.

After the UST Swap, all you have to do is choose which option you want to participate in within the Anchor Protocol. You can make use of 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 request 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 to stake ANC token or ANC-UST LP pool. In any case, you should study carefully which is the best option for your profile as a user of the platform.

Knowing a little more about each option within Anchor

Earn

The Earn option is the simplest option of all. Basically what Earn allows you is to make a UST deposit for which you will later 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 later convert into UST and withdraw whenever you want, without major inconveniences.

Borrow and Bond

As we discussed before, "Borrow" is for applying for loans. To apply for a loan, you must first generate bAssets (bLUNA or bETH) which you can do in the “Bond” tab. These bAssets will allow you to make an overcollateralization that you can then use to request loans 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 with their own policies and you should study the one that interests you the most in this case. Finally, once you have your bLUNA created, all you have to do is go to the “Borrow” option and request the credit you need (which is given to you in UST and in line with the bLUNA or bETH you have).

If you later 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 has been 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 burn and you must wait 24 days to receive your LUNA back. This is because your LUNA falls within 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 have generated rewards for the staking system, you can withdraw them within the "CLAIM" option that is in Bond. There, you can manage this whole 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 improve reward conditions) or staking in the ANC-UST pool. In any case, both options offer quite significant rewards according to the reality of the market within Anchor.

Links of interest