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Decentralized lending and borrowing has been the biggest and most popular of all DeFi activities/functionalities ever since the DeFi sector emerged. Out of the top 3 largest DeFi protocols by TVL on DeFi Pulse, two of them are lending protocols, which indicates just how much lending is represented in DeFi.
However, while things such as risk are significantly reduced in comparison to things like trading, there are still problems that decentralized lending brings. One example is volatility, which is the problem of the coins, not the protocol itself, but it is still something that DeFi users need to be very much aware of. Another issue is how much you actually get to borrow with the collateral that you can afford to provide. And, finally, there is often the matter of the UI, which tends to be overly complex for new arrivals to DeFi, due to their lack of experience with this technology.
This is why a project called Anchor Protocol (ANC) emerged, seeking to address these problems and offer solutions to them. Today, we decided to review it and show you what it has to offer, and why you should consider it if you are in the market for something a bit different from the things we have seen in DeFi until now.
Solutions on Offer by Anchor
Let’s start by looking into what solutions Anchor has to offer, and how they can help.
A solution for risk-averse investors
The first thing to note is that Anchor Protocol is a lending and borrowing protocol that offers yield on stablecoin deposits. This is a huge difference compared to other lending protocols, as stablecoins are, of course, immune to crypto volatility. As a result, lenders can simply deposit their UST and earn attractive rates while benefiting from low volatility, meaning that the value of their investment will not drop at some point.
Pushes the UST adoption
With such high reliance of UST, the stablecoin stands to see greater adoption and usage, and has a chance to take a portion of the market away from other leading stablecoins, especially Tether (USDT), which has been the top-ranking one for years, despite numerous controversies that it was involved in.
Pushes LUNA adoption and price
Another thing to note is that borrowers can deposit LUNA as collateral, and turn it into a productive asset without giving up control of it. Meanwhile, as collateral, LUNA receives a new use case, which also helps with pushing its own adoption in the crypto industry. With this use case, LUNA now has a purpose in DeFi, and since Terra’s (LUNA) founders are behind the Anchor Protocol, the price of LUNA also stands to grow.
What does Anchor Bring to the Table?
Now, let’s take a look at some of the benefits of Anchor Protocol for the regular user who opts to engage with the protocol, either by lending or borrowing.
Lending and borrowing
The first and most obvious benefit is that they get to lend or borrow money, depending on whether they have extra cash that they wish to profit off of, or if they require a loan. Lending and borrowing have been key DeFi functionalities, as mentioned earlier, so this protocol has a good chance of seeing lasting success.
User-friendly and elegant UI
Another thing that deserves to be mentioned is the difficulty that new users face when they first approach some lending protocols due to a complex user interface. It is worth remembering that not everyone comes into DeFi after years of being exposed to crypto, so many new DeFi adopters lack the experience to understand more complex UI.
By making it elegant and user-friendly, Anchor encourages users to come and stay, which is beneficial for the project, the user, the DeFi sector, and the entire crypto industry in the long term.
Borrow up to 60% of the collateral
Next, it is worth mentioning that borrowers who bond their LUNA tokens and receive bLUNA in return can borrow up to 60% of their deposited collateral in UST. Also, they pay an interest rate that is only slightly higher than that paid to lenders. As some may know, overcollateralized loans are typically not that generous, and users typically get a lot less for the money they deposited.
Finally, we should also note that the protocol uses revenue from the spread between lenders’ and borrowers’ interest rates to offer staking rewards on Terra. The rewards are typically between 5% and 7% annually, so if you opt to stake your tokens, that is approximately the percentage that you can earn passively per year.
How Does the Network Function?
Anchor Protocol is a lending/borrowing protocol that offers up to 19.5% yield in stablecoin deposits. The stablecoin that it works with is UST, and lenders can deposit UST and earn attractive rates on their investments. At the same time, they stand to benefit from the low volatility that stablecoins offer by their very nature.
Borrowers, on the other hand, can offer LUNA tokens as collateral, and raise significant amounts that can go up to 60% of the deposited collateral.
Anchor is a great project for risk-averse investors who look for high-yield, low volatility investments, and it increases the demand for UST, thus pushing its adoption, and increasing Terra’s adoption in DeFi. In the end, Anchor stands out from countless other money market protocols thanks to the elegance and simplicity of its platform, while the protocol’s core value proposition is connecting lenders and borrowers by offering the latter a way to borrow in stablecoin without forfeiting their investments, while the former gain attractive interest rate on stable assets.
Anchor Protocol (ANC) — A lending protocol offering yield on stablecoin deposits
Anchor Protocol has an interesting approach to lending and borrowing that can reduce the risks and provide significant returns, while also offering borrowers loans that can be as much as 60% of their collateral. Furthermore, it pushes the adoption of UST and LUNA alike, and it is very user-friendly, with an elegant interface that is welcoming and encourages new users to stay engaged
Ali is a freelance writer covering the cryptocurrency markets and the blockchain industry. He has 8 years of experience writing about cryptocurrencies, technology, and trading. His work can be found in various high-profile investment sites including CCN, Capital.com, Bitcoinist, and NewsBTC.
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