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20% yield on stablecoin deposits: Anchor Protocol (ANC) in 5 🖐

20% yield on stablecoin deposits: Anchor Protocol (ANC) in 5 🖐
By Fernando Gutierrez • Issue #77 • View online

What is Anchor Protocol (ANC)? 💰
The Anchor Protocol is the savings and lending element of the Terra ecosystem.
Anchor provides overcollateralized loans on Terra stablecoins and pays depositors around 20% per year (19.5% right now).
ANC is the fixed supply protocol governance token. All tokens will be distributed over a period of 4 years.
Stakers vote on proposals and get a portion of the protocol yield.
ANC is also used to subsidize the interest rate of the loans via direct distribution to borrowers.
Anchor can pay such a crazy yield because of two things:
  • It stakes the assets deposited by the borrowers guaranteeing their loans
  • The $ANC subsidy to borrowers that maintains a high-interest rate as a measure to jumpstart the market
ANC stakers vote on the Anchor Rate (now 20%), the target yield to pay depositors. If the real yield is higher than the Anchor Rate, a reserve is filled with the excess, and it is used when it is lower.
This further helps to stabilize the rate, so it’s more attractive to savers.
As in all crypto lending platforms, borrowers need to keep a certain Loan to Value (LTV) ratio between their disposed and deposited assets.
If the ratio goes too high, their deposited assets are liquidated to repay part of the loan and rebalance.
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Of course, this is not financial advice yada yada yada.
Understand what you invest in. This is not enough information, do your own research. Or face the losses. Your choice.
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