Everything you need to know about generating yield with Anchor Protocol.
Understanding what the user can do on Anchor Protocol from a high level.
First you can “Bond” Luna with a validator to receive bLuna. Having bLuna means you are forgoing any staking rewards that would have been associated with this original Luna.
Next you can provide the bLuna as collateral to the protocol and borrow against this collateral. You borrow UST – a USD pegged stablecoin. Be careful how much you borrow as your “loan” may be liquidated if borrowed amount goes above 50% in value of the collateral. A safe borrow rate is 35% of collateral value upon deposit.
Creating a “loan” triggers the protocol to pay you ANC (Anchor Token) in order to incentivize you to provide liquidity/ take the “loan”. At current network parameters you get over 300% APY to borrow from your deposited bLuna collateral! You get PAID to take a loan.
You can then take your UST and do what you want with it, including depositing it back with the protocol to earn around 20% APY which is ultimately funded by the staking rewards of the bonded Luna. Or you can buy more Luna and repeat the process, ultimately leveraging you initial position.
Notes from the founder, Do Kwon:
Anchor lets you borrow stablecoins against your stake.
Instead of charging explicit borrowing rates, the system passes on your staking rewards to lenders.
With Luna staking yield at 12% p.a. and LTV at 50%, this means that the system is able to generate at least 24% staking revenue on deposits – more than enough to cover the 20%
A concrete example: imagine Anchor has two participants, Bob the borrower and Luke the lender.
Bob locks up $220 worth of bLuna, and borrows 100 UST . The system makes 26.4% p.a. – Luke is happy capturing the 20, and the system is happy taking the 6.4.
ANC governance will set Anchor’s target yield – it can theoretically be set to any number.
If staking reward > target yield, the excess funds are reserved.
If rewards < target yield, reserves are used – and ANC incentives increase rapidly to increase borrowing demand
What is ANC Staking?
The Anchor Token (ANC) is Anchor Protocol’s governance token. ANC tokens can be deposited to create new governance polls, which can be voted on by users that have staked ANC.
ANC is designed to capture a portion of Anchor’s yield, allowing its value to scale linearly with Anchor’s assets under management (AUM). Anchor distributes protocol fees to ANC stakers pro-rata to their stake, benefitting stakers as adoption of Anchor increases — stakers of ANC are incentivized to propose, discuss, and vote for proposals that further merit the protocol.
ANC is also used as incentives to bootstrap borrow demand and initial deposit rate stability. The protocol distributes ANC tokens every block to stablecoin borrowers, proportional to the amount borrowed.
You can Stake ANC in the governance staking contract to generate around 1-2% annually in ANC staking rewards.
You can unstake at anytime and regain the ability to move your ANC.
This guide will show you how to Bond LUNA, provide Collateral, Take a Loan, and Stake UST and ANC.
For starters, you need to own some LUNA. You can buy these from a supported market such as Kucoin.
Next you should make sure to have a Terra Wallet set up, either with the google chrome Terra Station extension or via Ledger. We recommend using a Ledger.
Lastly you’ll want to make sure you have some knowledge on Anchor Protocol which you can research on the ANC Staking Rewards Asset page.
How to Generate Yield with Anchor Protocol
First you want to bond your Luna with a Validator to obtain bLuna.
Go to https://app.anchorprotocol.com/bond/mint and connect your Ledger Terra Wallet in the upper right hand corner.
Here you are going to deposit your Luna with a validator and get back in return bLuna.
For information on Luna Validators go here.
Enter the amount and select your validator, click “Mint” and confirm the transaction.
*In the future you’ll be able to bond other proof-of-stake assets.
Now that you have bLuna, you want to go here https://app.anchorprotocol.com/borrow, to provide your bLuna as collateral.
You’ll see on the bottom of the screenshot where you need to click “provide” enter how many bLuna you want to provide and confirm the transaction.
Now you have deposited collateral.
Next step you can scroll up on this page and click “Borrow”.
The below screen will pop up and you can choose how much UST you want to borrow from your collateral deposit. It is recommended a safe borrow percent of 35% of the collateral value.
Make sure you have some Luna left in the wallet to cover gas fees for these transactions.
Enter the amount of UST you want to Borrow and Click “Proceed”
Once the transaction confirms you should now have UST in your wallet available for use and you will automatically start earning ANC as a reward for taking the loan.
Next you can stake your UST on this page, https://app.anchorprotocol.com/earn.
Click “deposit” and enter how much UST you want to deposit. The APY you will earn is shown on the right hand side. This is paid in UST.
To monitor all your deposits and rewards you can go here, https://app.anchorprotocol.com/gov.
You see the button to “Claim All Rewards” you can press this to claim all pending rewards.
Furthermore, you can stake your ANC in the governance contract here: https://app.anchorprotocol.com/gov.
With an ANC balance in your wallet click “Gov Stake”.
Next you will be able to enter the amount of ANC you want to Stake in the contract to earn additional yields and obtain governance rights.
Congratulations, you are now getting paid to take a loan and earning yield on stablecoins!
Anchor Protocol is an important part of the Terra ecosystem where users can leverage their LUNA for stablecoin loans and actually get paid for doing so. In the future you will be able to deposit other proof of stake assets like Cosmos ATOM with this same process. This is extremely innovative and the protocol is almost like a souped-up version of MakerDAO and DAI, but so much better. For me, this protocol will be extremely valuable when we eventually enter a prolonged bear market, where users can generate ~20% APY on stablecoins. I highly recommend becoming familiar with this protocol as it will help protect your hard earned wealth and also provide you with opportunities to earn free yield. Also, another positive is the low fees associated with all these transactions!
For more information on Luna – visit the Staking Rewards LUNA Asset Profile.
For more information on ANC – visit the Staking Rewards Anchor Protocol Asset Profile.
For more information on MIR – visit the Staking Rewards Mirror Protocol Asset Profile.