Anchor Protocol: promised security and became a headache

Published on 26 March 2022

WARNING: Due to the high volatility of the Luna and UST coins during the last days, the high risk of the operation with crypto assets is reminded. The data contained in this article is not up to date and may contain old information.
None of the content on this site can be considered investment advice.

This is the original article published few weeks ago. But everything changed after May 9th, 2022.

Entering the world of cryptocurrencies can mean uncertainty for those who are not used to market volatility. The change in the price of crypto assets can scare many who are trying to figure out how the new system works.

That is why many prefer to use stable coins and try to make a profit from them.
More experienced holders and traders prefer to keep part of their portfolio in assets that maintain stability in relation to others.

In this regard, various stablecoins have been installed as options. Such is the case of USDT, USDC, USDN and many more.
But in this spectrum of options, a coin has appeared that captivates investors: the UST.

With this currency, it is possible to obtain returns close to 18% per year (APY) thanks to a protocol called Anchor that operates on the Terra blockchain. While this return is variable, it is one of the least volatile in the stablecoins market.
UST can be deposited there and withdrawn at any time. Meanwhile we can see the profits that are being obtained.
Before analyzing the Anchor Protocol in detail, it is necessary to learn more about the UST token.

What is UST

It is a stable coin within the Terra ecosystem. This environment proposes not only the UST as a stable currency but also others tied to national currencies of different countries.
The Terra protocol proposes that it be possible to send assets between different countries instantly and with very low commissions.
To do this, it uses algorithmic stable currencies, which maintain their price relationship with the currencies of different countries.

It is important to know that the ecosystem has on the one hand the Terra stable coins and on the other the Luna coin, which is freely traded on the market.
Luna is a staking coin that can be deposited at validator nodes to secure the network.
Stability is obtained by the algorithm burning Luna every time an user mints Terra, and burning Terra to mint Luna.

What is Anchor Protocol?

Anchor Protocol is a decentralized platform that enables low volatility returns and loans on Terra stablecoins. Many investors have deposited their assets demonstrating their trust in the platform to keep their funds safe.

The protocol has its own token called ANC.

To access, it will be necessary to install a compatible wallet such as Terra Station. Funds can be deposited in it in a decentralized manner and interact with the Anchor platform.
Terra Station is a wallet that can be installed as a Chrome or Brave browser extension.

Once we load https://app.anchorprotocol.com/ the browser will connect to the wallet. At a first glance we can see in the upper right corner the abbreviated address of the wallet and our available balance in UST. We will also see an option to switch to the Avalanche blockchain, but we will not discuss this feature, we will only operate on the Terra blockchain for now.

In the body of the Home page we will find 6 tabs: Dashboard, MyPage, Earn, Borrow, bAsset and Govern.

Dashboard

In this part we are presented with general protocol data such as Total value locked, total deposit, total borrow, price of the ANC token and more information.

My Page

Here we will find information about our assets managed through the wallet. In order to access this information, the wallet must be connected

Earn

This is the section where we can deposit our UST and also withdraw them. The balance and its permanent evolution with the the compound interest will also be observed here.
In addition, the Anchor Protocol calculator allows you to estimate the performance in 1 year, 1 month, 1 week or 1 day.

Borrow

In this section you will be able to borrow UST. At first, it will be necessary to deposit a collateral to request the funds. Here we will find the list of the different currencies enabled to deposit as collateral. Those assets must be available in our Terra Wallet to be able to leave them as collateral.
It is important to know that this operation is of high risk, in that the abrupt fall in the price of the asset deposited as collateral can trigger the liquidation of the position.

bAssets

In this section we will be able to handle the bAssets, that are liquid, tokenized representations of our staked assets. With this tool we can bond Luna to mint bLuna and we can also burn bLuna and get Luna.
There are also options for bAtom and for bETH.

Govern

In this section we will be able to convert UST into ANC (Anchor Governance Token). Also stake and unstake ANC.
It will also be possible to participate in the governance of the protocol.

Sending funds from another Blockchain

If you have funds in another blockchain and want to transfer them to the Terra blockchain to be able to deposit in Anchor Protocol you can follow this guide.

Conclusion

Anchor protocol offers high APY with low volatility over stablecoins and is an option used by many people who want to reduce risks and get predictable returns.

Those who wish to obtain loans should know that they run the risk of liquidating the position in the event of sudden variations in the asset deposited as collateral.

UPDATE MAY, 18: The UST lost the peg with USD.