Anchor Protocol: The Greatest Crypto Savings Account with 20% APY
Kiss your bank's lame 1.5% APY goodbye and finally give inflation the finger.
Welcome to the beautiful world of crypto, where nerds have come together to build a better financial future for us all.
As someone who has been in the crypto markets since 2016, real-world application has always been something the market honestly didn’t have early on.
You had your “ethereum killers” popping left and right, ICOs raising $40MM in funds and 10x’ing (with no working product), and ugly dApps that belong on the google play store (Sorry Android users).
I believe crypto can only go mainstream when projects focus on building products that are just better. So instead of a crypto game, create a fun game.
In comes the Terra Luna Blockchain.
From Terra’s official documentation, “Terra is a blockchain protocol that supports stable programmable payments and open financial infrastructure development.”
My focus on this article is one of their core products, Anchor protocol, but expect a full write-up on the entire blockchain soon.
Terra is building DeFi products that replace your banking needs like:
The Anchor protocol has had explosive growth. The Total Value Locked (TVL) on Anchor currently sits at $2.1 billion dollars with the team having a goal of $10 billions TVL by the end of 2021.
What is Anchor protocol?
I’ve seen many personal finance YouTubers like Graham Stephen (who I love btw) talk and promote about 2.5% interest rates on savings account. That is kitty litter compared to what Anchor protocol offers you.
Anchor is a savings protocol that pays you a fixed interest rate of 20% (19.5% < interest < 20.5%) on a USD stable coin.
Here are a few advantages to crypto money markets:
No credit checks
No minimum deposits
You can withdraw your funds at anytime
This rate is easily 200x to 400x more than what the average bank will offer you in interest, which is why the stock market is on fire. People are moving their money out of their savings and into the stock market to fight inflation.
How does it work?
The biggest question you may be asking is, “how can they maintain paying 20% interest to depositors?”.
Anchor protocol has borrowers and lenders, just like a bank.
Borrowers have to deposit collateral to receive loans. The cash flow from the asset deposited as collateral & the interest they pay to borrow is used to pay the 20% interest to depositors.
It’s important to note; borrowers can only borrow up to 50% of their collateral.
The collateral asset borrowers deposit is Luna, which is a cryptocurrency that earns stable-coin fees from Chai. CHAI is a mobile payments dApp that allows consumers to pay for items online by simply adding their bank account. Chai has about 2.4 million users (data from chaiscan.com).
Now is this sustainable? Yes, interest paid from borrowers and yield earned from Luna as collateral covers the interest paid to depositors. Excess cash flow generated from interest is then stored in a Yield reserve.
What happens if borrowers cannot cover the 20% interest paid to depositors?
Just like how big man J powwow (Jerome Powell) manipulates interest rates, Anchor protocol’s algorithm will change interest rates to incentivize more people to borrow, balancing everything out. Incentives encourage the correct behavior, and Anchor protocol uses that to its advantage.
Anchor protocol will deploy capital from the Yield Reserve
How do I get set up?
Now that you come to understand why you should at least try out Anchor protocol, how do you do it?
Create a Terra Station wallet
First go ahead to Anchor’s website: https://anchorprotocol.com
Once you’ve clicked on the website, click on web app
Then purchase Terra’s stable coin UST by clicking on Buy UST
I recommend watching this video on YouTube that explains it step by step:
Anytime you interact with any blockchain, it’s always good to consider the worst-case scenario. In this case, it’s either:
A smart contract hack
UST losing its $1 peg
But fear not, my friend, there is a solution and her name is Insurance.
On the Anchor protocol earn dashboard, you can purchase affordable Insurance.
Once you’ve deposited your UST and are earning 20%, you can purchase Insurance here.
I hope you enjoyed this breakdown of the Anchor Protocol. 20% APY is a great way to beat inflation and have predictable stability in your finances.
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