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- How to Earn 20% APY with Terra’s Anchor Protocol, a DeFi Yield-based Savings Account
Disclaimer: this article is purely for information purposes and does not constitute investment advice. We take no responsibility for any losses you may incur on investments in cryptocurrencies.
We previously discussed the Terra blockchain and decentralized finance ecosystem they’ve created, including TerraUSD (UST) stablecoin and Anchor Protocol. To recap, Anchor is a decentralized savings product that offers low-volatility yields on the UST stablecoin.
In this article, we take you step-by-step through the process of buying Luna/UST on an exchange, to depositing it in Anchor to earn yield. It’s a fairly simple process, but for those uninitiated to crypto it could be intimidating as it requires using a self-hosted crypto wallet (Terra Station).
Step 1: Buy Luna/UST on an Exchange
The first step to staking UST on Anchor is to purchase Luna or TerraUSD cryptocurrency on an exchange. This can be done on your exchange of choice, we recommend Newton for Canadians and will use it for this tutorial. Other reputable Canadian exchanges include Crypto.com and NDAX. Make sure the exchange has Luna/UST and allows withdrawals on the Terra network before you buy.
After you sign up for Newton, or your exchange of choice, you’ll need to fund your account with Canadian dollars. You can do this from the web dashboard or the app.
From there, you can fund your account using Interac e-Transfer or Wire Transfer. Most will probably opt for e-Transfer which is faster (~2 hrs) and easier.
Then you will place a trade for CAD → UST using the trade interface. If your exchange doesn’t have UST, you can buy Luna instead and we will swap it later in the Terra Station desktop wallet.
Step 2: Send Luna/UST to Terra Station Wallet
The easiest way to access Anchor Protocol is directly through the Terra Station desktop wallet. This is a self-hosted crypto wallet created by Terra. You can download and set it up using this official Terra Station guide. There is also a chrome web app version of the wallet and a mobile version.
Following the steps to wallet creation, you now need to send the Luna/UST you purchased earlier to your Terra wallet.
On Newton (or your exchange of choice), select to withdraw your UST to ‘crypto wallet’. Make sure you are using the Terra Network for the transaction, and then enter your Terra Station wallet public address.
Once you complete the withdrawal, the Luna/UST should show up in your Terra wallet very quickly (depends on the exchange). Newton technically warns that transfers can take up to 48 hours but I’ve never had to wait more than 5 minutes.
You will pay a small fee for the transaction (<$1 on Newton).
Step 3 (Optional): Swap Luna to UST using Terra Swap
If you originally purchased Luna from the exchange, you will now need to exchange it for UST. This can be done from within your Terra Station wallet.
Simply navigate to the ‘Swap’ tab of the wallet, select From: Luna and To: UST, enter your password, and swap.
Step 4: Deposit UST into Anchor Earn from Terra Station
Once you have UST in your Terra Station wallet, depositing into Anchor is very straightforward. On the main wallet dashboard, you’ll see Anchor Earn on the right-hand side. Simply click on ‘Earn’.
On the next screen, you’ll see the current APY of Anchor and be able to select the amount you want to deposit (or withdraw). Enter your password and submit to process the transaction.
At this point you are done. UST is now deposited in Anchor and earning yield.
Is Anchor Protocol Safe?
Anchor has significant risks to be sure. Anchor is an uncollateralized stablecoin, and uncollateralized stablecoins have a long history of failing (see Iron and Titan, Fei). That being said, UST has made great strides to maintain price security and has already survived significant market stress tests. They do also have a reserve of BTC which is eventually going to cover ~65% of the UST market cap.
If that’s not enough for you, consider insuring your deposit against de-peg risk (see below).
Is the 20% Anchor Yield Sustainable?
Anchor’s yield is probably not sustainable in the long term. This yield is currently subsidized by the Luna Foundation. There is a real yield that Anchor can sustain and payout, and the Luna Foundation supplements that yield with a reserve (think of it as a marketing expense to onboard users to the Terra ecosystem).
When that reserve runs out (or when Luna Foundation decides to stop topping up the reserve), then the Anchor yield will decrease to the rate actually backed by demand for UST borrowing. Some estimates put that number around 10% at the time of writing (of course subject to change). A dashboard has also been created to monitor Anchor’s current real interest rate although I am not certain of its accuracy.
Insuring Anchor Deposits
If the risks of UST trouble you, one option to reduce the risk is to pay for insurance on your Anchor deposits. You can insure against both the Anchor Protocol itself, ie. insuring against potential hacking or compromising of the Anchor smart contract, and against de-pegging of UST. In the event that UST loses its price peg, you would be compensated for the lost value.
Some DeFi insurance providers that offer these types of insurance are: Nexus Mutual, InsurAce, Bridge Mutual, Unslashed Finance, and Risk Harbor. See our keystone article on Luna and Anchor for a deeper discussion of these insurance providers.
Determining Your Anchor Earnings
If you know the principle you invested into Anchor it’s easy enough to know how much you’ve been paid in interest by viewing the total in the Terra Station wallet. Otherwise, you can go onto the Anchor web application to view a more detailed dashboard with information on your interest payouts.
The Anchor web application requires the Terra Station Google Chrome Extension to be installed. If you’ve created a desktop Terra wallet, simply go through that guide and ‘Recover existing wallet’ using your seed phrase.
There is also another simple tool for displaying your Anchor earnings created by Flipside Crypto. Again, you will need the Terra Station chrome extension to use it.
Anchor Protocol currently offers one of the highest yields in the world of decentralized finance, with virtually zero volatility risk. If you are deciding to invest your capital into Anchor, I hope you found this guide helpful and straightforward.
Just remember, you are dealing with self-hosted crypto wallets here. Safeguard your seed phrase. If you lose it, your funds are lost, and if someone else gets access to it, your funds are also lost!
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