I talked about Anchor Protocol in my memo on the Terra Ecosystem. If you haven't read the terra memo yet, you should surely check it out, but I'll bring you up to speed on Anchor here anyways. Anchor is a low-volatility yield platform that guarantees a 20% yield on your UST (Terra's USD pegged stablecoin). Yes, you read that right 20% yield on an asset meant to have no volatility. Established Ethereum based leading applications completely pale in comparison to Anchor due to two big reasons:

Okay, so Anchor sounds like it's a lot better than the competition. But how?

Anchor, like a bank, has two sides, lending and borrowing. Lenders deposit their UST to Anchor and get 20% returns (yields are also in UST), easy. But the borrowers who take UST loans out make the 20% interest for depositors happen.

When someone takes a loan from Anchor, they deposit assets called bASSETS as collateral. Now, these bAssets are actually tokens you'd get when you stake a Proof-of-Stake (PoS) blockchain asset. For example, by staking [[[[[$LUNA.X](/asset/LUNA:crypto)](/asset/LUNA:crypto)](/asset/LUNA:crypto)](/asset/LUNA:crypto)](/asset/LUNA:crypto) on Anchor, you get bLUNA. This bLUNA essentially grants its holder the ability to claim rewards (which come from mining on the PoS blockchain) for the $LUNA.X that's been staked. By collateralising the bAsset, a borrower allows Anchor to claim the rewards they would receive from staking their asset. These rewards normally range between 10-15% APY. Anchor's minimum collateral ratio is 200%, so you'd need to collateralise at least $2 worth of bLUNA to get $1 UST on loan. Thus, there's a clear opportunity for Anchor to provide very attractive interest rates to depositors by diverting staking rewards to them.

Beyond sacrificing staking yields, borrowers also pay around 38% in interest on the amount of UST they take as loan on Anchor, but they are incentivised to take these loans out with a variable drop of Anchor's Governance token $ANC. Currently, the rate for the drop is 82% on the loan amount, meaning that borrowers are actually getting paid 40% more in $ANC airdrops than they'd need to pay in interest (but they should also consider that they are giving up staking yields). I think taking a loan out from Anchor probably makes sense if you've got assets that you'd like to hold long-term but would like to have some liquidity for shorter-term plays, but it's not meant to be extremely lucrative in a vacuum (Borrowers make ~10-15% on their loan amount right now assuming a collateral ratio of 250%, look at the borrow section of Anchor Simulator to see a more accurate breakdown).

There is also the risk of liquidation every time someone takes a loan out on Anchor. The minimum collateral ratio is 200%, but I'd think borrowers should provide at least 250% in collateral given the volatility of the collateralised assets (currently only bLUNA). Note: If your collateral value is > 500 UST, then your loan is only partially liquidated; in case it's <= 500 UST, it is completely liquidated when under risk of under collateralization. This page on the docs has more information on loan liquidations, and I'd recommend reading it before taking out loans.

Some other things to note are:

So, I've used 80% of a memo on earning 20% yield talking about borrowing. I think this is important because borrowing on Anchor enables the 20% yield. The only way to have confidence that any of this makes sense is to understand how the protocol can generate this yield and protect the depositors' principle. Hopefully, I've done a decent job explaining most of the moving parts when it comes to Anchor, including outlining all the risks involved.

Protocols like Anchor completely change how I think about finance and what is possible with decentralised finance. I have no clue whether the 20% is sustainable long-term (it surely looks feasible for the next couple of years with $ANC airdrop coming). Still, even if they achieve ~10% APY whilst giving many people a lot of confidence when depositing their money into the protocol, they would have added a lot of value to the world.

Thanks for reading!

Anchor Web App: https://app.anchorprotocol.com/earn

Anchor Whitepaper: https://anchorprotocol.com/docs/anchor-v1.1.pdf

Anchor Docs: https://docs.anchorprotocol.com/

Anchor Simulator: https://anchor-simulator.com/

Lido Finance: https://lido.fi/ (implementers for liquid staking of $LUNA.X using bLUNA)

DeFi currently lives on Ethereum. Even though there are other platforms with DeFi applications, Ethereum is by far the leader in the space. I think this is due to two big reasons:

Bitcoin, for example, has the network effects (and the strongest computational network) but didn't have a smart-contract platform that allowed devs to build things on top of it. All other smart-contract platforms have much weaker network effects leading to significantly lower development and adoption of DeFi on those platforms (although I think this is changing pretty quickly).

I've recently been seeing a lot of talk about DeFi on Bitcoin, so I thought I'd do a deep dive and share my learnings here. The first question to ask will be if Bitcoin doesn't have smart contracts, how can we enable activities like lending, borrowing, derivatives etc.? This is happening using a concept called pegged sidechains. Pegged sidechains are essentially separate blockchains without a native currency. They use a version of the native currency of their parent chain (i.e. Bitcoin). Users can transfer bitcoin (the currency) from the Bitcoin network to the sidechain (this happens via a lockup of the currency on Bitcoin and the issuance of an equivalent token on the sidechain). So, new sidechains can enable better tech without having to create a completely new ecosystem themselves. This better tech includes faster, cheaper transactions and a smart-contract platform to enable DeFi. The two sidechains on Bitcoin that stand out are:

The most promising sidechain project, in my opinion, is, Sovryn (built on top of RSK). Sovryn has a dApp with borrowing, lending and margin trading activities available. Using their dApp gives me the highest confidence compared to other projects with similar offerings on RSK, even though Sovryn only launched a few weeks ago. The total value locked on Sovryn has absolutely also exploded since their launch, according to this graph on RSK:

This is at least partially because it received an investment in the region of around $9 million from a group of investors led by Pomp (tweet here), causing a huge initial uptake of Sovryn and causing their governance token $SOV to almost 9x'd from the price (in sats) the investors got their allotment.

It's important to remember that it's still early days for DeFi on Bitcoin, though. I've seen many complaints on Sovryn's discord about their bridge from BTC to RBTC being excessively slow (although my transaction from FTX seemed to have gone through without any issues). The borrowing and lending program only supports 4 assets, and the use-cases, once you borrow, seem far less composable than on Ethereum. All of these growing pains will surely dissipate as Sovryn and other projects in this space mature.

If DeFi on Bitcoin does take off in a big way, I have a feeling that Sovryn might be involved, so I'll keep my eye on them over the next few months.

Coindesk article on DeFi on bitcoin: https://www.coindesk.com/bitcoin-defi-a-response

Sidechains Whitepaper: https://blockstream.com/sidechains.pdf

RSK blog on Sidechains: https://blog.rsk.co/noticia/the-cutting-edge-of-sidechains-liquid-and-rsk/

$LUNA.X the flagship token of the Terra ecosystem has gone from a mere $0.65 at the start of this year to over $13 (down from highs of $22) at the time of writing. So what's the driver of this explosive growth (even by crypto standards)?

At the heart of the Terra ecosystem is their stablecoin offering. They believe that a price-stable currency is required to enable mass-scale adoption of crypto as a medium of exchange and a store of value. Their stablecoin offering actually includes a basket of tokens, each pegged to one of the world's prominent fiat currencies (UST to USD, AUT to AUD, INT to INR etc.). The price of the stablecoin is pegged to its fiat counterpart using the $LUNA.X token. For example, if the price of:

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Since Terra is a proof-of-stake blockchain, miners stake their $LUNA.X to receive block rewards.

In the first case, when new $LUNA.X is minted, the miners lose out on rewards since they own a smaller percentage of the total $LUNA.X supply (this is the essence of a proof-of-stake blockchain). But the Terra ecosystem tries to incentivise miners with consistent rewards (which come from transactions on the Terra blockchain) so that they are willing to take small hits during periods of price volatility. To counter-act dilution, the $LUNA.X the system receives in the second case (when UST > $1) is partially burned. The rest of the $LUNA.X is moved to the treasury and provided as funding to dApps that contribute to the trading volume of the Terra ecosystem.

The overall bull case for $LUNA.X is the growth of the Terra economy (i.e. increase in transaction volume), leading to more rewards for miners staking $LUNA.X (making holding the token lucrative). So it naturally makes sense to look at some applications on Terra to see where their economy is headed:

One of the first dApps on terra, Chai, enables mobile payments on the Terra blockchain. According to this post by the folks at Terra, it gained over 500,000 users in just 4 months of operation, processing $54,000,000 in transactions. Chai has successfully integrated with some of the biggest e-commerce platforms in Korea and offers payments for a much lower cost than traditional methods like credit cards. They currently have over 2,000,000 users and are doing a very healthy $2,000,000 in transaction volume daily (source: here).

Chai shows that the terra blockchain has at least one viable use case in payments and has been a huge part of the early growth of the terra economy. If Chai can capture the lion's share of payments only in Korea, I'd say that's a multi-billion dollar company. What does that mean for the Terra economy and $LUNA.X?

Mirror, another terra dApp, aims to mirror assets such as stocks onto the blockchain. Someone could choose to buy stocks in companies like Tesla, Apple, and Google without moving funds out of the terra ecosystem. This is primarily aimed at allowing anyone with an internet connection to access the asymmetric opportunities in the public markets that all of us on commonstock are reaping amazing rewards from. Anyone can mint an mAsset (e.g. mint mTSLA to track $TSLA) by locking up collateral and then trading the asset to other users on the mirror protocol (the user minting the asset is essentially shorting the asset, but I'll leave the specifics of mirror for another memo). Mirror already has over $2,000,000,000 in total value locked with mAAPL being the largest asset (besides $MIR.X, the governance token for the protocol) having over $61,000,000 in total liquidity. Overall, I'm extremely bullish on the idea of being able to deal in tokenized stocks to cut out a lot of the issues around buying US stocks across the world.

Side note: $MIR.X recently listed on Coinbase but Coinbase doesn't yet support $LUNA.X.

Anchor Protocol is a savings platform that is currently providing 20% APY guaranteed. This is only the second savings platform on DeFi that I've seen provide stable yields (the first being 88mph.app). It uses block rewards from proof-of-stake blockchains to guarantee these yields (I'll use another memo to talk about how Anchor works in detail). But according to the the most important thing about Anchor is that a simple, intuitive, savings platform that provides significantly higher yields than TradFi could be big for the large-scale adoption of crypto.

Side note: Right now, even borrowing UST from anchor provides positive yields (yes, you read that right!) due to them distributing $ANC tokens as rewards.

All in all, I think the terra ecosystem is building all the right primitives to become a serious player in DeFi (maybe the first whose utility can become comparable to Ethereum) and I remain bullish on the ecosystem over the next 5-10 years irrespective of crypto's bull-bear cycles.

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$LUNA.X is, unfortunately (or maybe fortunately if you like getting in before the Coinbase pump) not on Coinbase yet. But is available to buy on Binance, OKEx and Huobi afaik. (Note: $MIR.X is available on Coinbase).

I tend to just buy UST, move it to terra station and then use the swap feature there to buy tokens in the Terra ecosystem.

$LUNA.X can be directly staked on https://station.terra.money/. The rewards are currently in the 40% range, coming in the form of $LUNA.X and stablecoins earned directly earned on Terra station + airdrops of $MIR.X and $ANC that can be collected from https://terra.mirror.finance/airdrop and https://app.anchorprotocol.com/airdrop. Staking $LUNA.X also comes with a number of airdrops for projects that launch on terra but timing these isn't straightforward.

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