What is Anchor Protocol?
Anchor Protocol is a project developed within the Terra ecosystem. As the name suggests, it’s a decentralised finance protocol that aims to offer network users a system of collateralised loans. It generates rewards for both the lender and the borrower, who is assigned an annual percentage rate (APR).
Both operations involve the use of stablecoins, collateral and tokens on the Terra chain. Known for its very high and stable APYs (19.5%), Anchor Protocol initially contributed to the success and popularity of the Terra LUNA blockchain. In May 2022, however, it suffered a severe crash following the failure of the algorithm that linked LUNA and its stablecoin UST, which caused its smart contract deposits to plummet.
Why follow Anchor Protocol?
The Anchor protocol found a DeFi niche for itself by virtue of its ease of use and its clear and reliably stable operational rules. The ultimate added value of Anchor Protocol was its ability to match the needs of lenders and borrowers. The system also has its proprietary token, the Anchor Token (ANC). Its function is to promote staking and manage the governance of the protocol.
How was it created?
Anchor Protocol was developed by the company behind Terra, Terraform Labs, a South Korean fintech owned by Daniel Shin and Do Kwon. The project started in March 2021, although the whitepaper, written by Nicholas Platias, Eui Joon Lee and Marco Di Maggio, is dated June 2020. In 2021, the popularity of the Terra blockchain went hand in hand with that of Anchor. In summer 2021, Terraform Labs deposited 70 million UST into the Anchor Yield Reserve to ensure its stability. However, with the decline in LUNA’s price and the breakdown of the UST peg, Anchor Protocol has exhausted its effectiveness, at least temporarily, though it may have been an inherently functional project.
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