This article provides information about the Terra network and the Anchor Protocol. This will allow access to the Terra blockchain ecosystem, which provides users with access to DeFi (Decentralized Finance) applications.

Terra Blockchain

Anchor is a savings protocol offering low-volatile high yields on Terra stablecoin (UST) deposits. While banks are offering less interest on savings, Anchor offers between 19 – 20% APY. The Anchor protocol makes use of the Terra blockchain ecosystem to earn users higher yields on their deposits. 

The protocol is decentralized. There are no required sign-ups other than access to a wallet. There are no minimum deposits, account freezes and users can immediately withdraw funds at any time. 

Anchor also lets users borrow against their digital assets as the collateral. The borrower is issued Terra stablecoins based on an LTV (Loan-to-Value) ratio. The higher the LTV for borrowing against collateral, the higher the risk of liquidation if the borrower is not able to maintain the ratio. The good thing about it is that this provides liquid assets to users without losing their original assets. As long as they pay back what was issued, they can recover their collateral.

Users can also stake ANC tokens to earn more tokens. This can also be provided to liquidity pools for the ANC/UST token pairing. The protocol’s simplest earning product is a UST savings deposit, which can earn up to 20% APY.

Participants

The participants are the users of the Anchor protocol. There are 4 main types.

1. Lenders – Deposits Terra stablecoin UST for lending to earn % APR. In return they receive a token bond issued as aTerra. This is used to redeem the deposit along with accrued interest.
2. Borrowers – Deposits collateralized digital assets in the form of bonded assets or bAssets (e.g. bETH or bLUNA) in order to borrow money based on an LTV ratio. The borrowed money is against the borrower’s collateral and is in UST stablecoins.
3. Liquidators – Purchases liquidated collateral from bidding. When a lender is about to default or has reached the threshold LTV, the liquidation process allows for bids to liquidators.
4. Liquidity Providers – Provides liquidity to a pool for token pairing of UST/ANC. In return, liquidity providers earn from transaction fees made from the liquidity pool.

Tokens

There are 5 types of tokens involved in the Anchor protocol.

UST (USD Terra) – The Terra stablecoin that is pegged to the USD (US Dollar) in price.

1 UST = 1 USD

aTerra (Anchor Terra) – Represent the deposited UST stablecoins. 

Redeemable for initial deposit D and accrued interest i

aTerra = D + i

To receive aTerra, a user must deposit their digital asset as bAssets. 

The aTerra is then issued based on the LTV ratio. 

bAssets (Bonded Assets) – The locked collateral

Locks the value of assets from collateral.

• Bonded Luna (bLuna) – Token backed by Luna
  – CW20 compliant for fungible tokens (ERC20 based)

exchangeRate = lunaBonded / bLunaSupply

• Bonded ETH (bETH) – Token backed by ETH
  – CW20 and ERC20 standard

 ETHexchangeRate = stETHbalance / bETHSupply

Anchor (ANC) – Governance Token

Allows token holders to participate in digital governance for  policy making decisions and development of the protocol.

ANC-UST LP – Liquidity Pool (LP) token issued for users who provide ANC/UST token pair.

How to Earn From Anchor 

There are 4 DeFi products that allow users to earn from Anchor.

1. Deposit UST to earn up to 20% APY (subject to change)
   • Users deposit their UST to earn % interest APY.
   • Users receive a bond of their deposit as aTerra.
   • The longer the user keeps their deposit in savings, the more interest they can earn.
   • Withdrawals can be made at any time.
2. Stake ANC and earn ANC
   • Users stake their ANC governance tokens.
   • There is a % APY of staking rewards given to ANC stakers.
   • Rewards from staking are claimed when users unstake their ANC.
3. Provide liquidity for ANC/UST token pair, earn ANC
   • Users provide equivalent amounts of ANC and UST for liquidity.
   • Their pool contribution is issued as ANC-UST LP token.
   • Users earn from transaction fees from the pool.
   • The ANC-UST LP token is used to redeem the user’s earnings, when liquidity is removed by burning the LP tokens.
   • Users receive the amount of the ANC and UST they provided along with the earnings, depending on the number of LP tokens burned.
4. Collateralize bLUNA or bETH to borrow UST and earn ANC
   • Users provide digital assets (ETH or LUNA) as bonded assets for collateral.
   • Users can borrow against their collateralized assets using an LTV ratio.
   • Users can borrow until the loan’s LTV ratio reaches the MAX LTV, calculated based on collateral types, their prices, and deposit amount.
   • Users can use the money they borrow to earn ANC.

Liquidation Contracts

• The higher the LTV, the higher the risk of liquidation.
• Manages collateral liquidations of loans at risk of under collateralization.
• Used by liquidators to purchase liquidated collateral.

Synopsis

Anchor allows users to earn by allowing deposits of their UST for % APY.

They can also borrow for collateralized lending using bETH and bLUNA tokens.

Staking allows users to stake ANC tokens for yields and claim rewards.

Contribute to liquidity, allowing users to provide ANC-UST token pairs to a liquidity pool and earn from transaction fees.

Disclaimer: This is not financial advice. The information provided is for educational and reference purposes only. Do your own research always to verify information.

First Published in CoinGraphIQ (11/10/21)