How to get started with Anchor Protocol to earn 20% stable yield. ELI5 take that will turn your grandparents bullish on Anchor.

11 min readJul 5, 2021


Congratulations! Wait, on what? Well, in case you start reading this article, you have probably been thinking about how to let your money work for you (overnight while sleeping, as Warren Buffet suggests). That is an outstanding achievement if you consider that the monetary policy of many countries is leading to high inflation rates. This, paired with low, or even negative interest rates on bank accounts, makes it very difficult for risk-averse savers to protect their wealth.

This article will help you discover how to get an annual yield rate of 20% on your US dollars with Anchor Protocol. All of this without any hidden costs or complex strategies; simply 20% on your money.

I bet that your internal alarm system already went off: “This can’t be, can it?”. “20%? No way, my bank is at 0.1% APY”. “Sure, DeFi, this is probably more complicated than building a rocket.” Great! Because all of those are fair questions, and it’s great that you ask yourself how all of this is possible. Let´s dive into it.

Ok, you have my attention. Anchor Protocol: What is it?

In a nutshell: Anchor is a savings protocol built on the Terra Ecosystem that offers you stable yields on your Terra stablecoins. However, suppose you want to have a little more technical definition to look cool in front of your tech-savvy friends. In that case, you might want to take this one: Anchor is a decentralized money market between lenders and borrowers. Lenders are looking for fixed yields on stablecoins (20%), while borrowers are looking to borrow those coins against crypto assets they bring (Link).

What is essential for you is that the main selling point of Anchor Protocol is a stable yield rate on stablecoins between 19.5% and 20.5%. At the moment of writing, this is the highest possible fixed rate for any stablecoin. This rate is set in the smart contracts of the protocol.

To participate in the fixed yield (20% APY), you must bring UST to the table. UST is the native Terra stablecoin for the US dollar. It´s pegged to the dollar, so 1 UST is always worth 1 US dollar (Please find here an overview on how to obtain UST). The protocol makes money by taking benefit of the proof-of-stake (POS) mechanism of the Terra blockchain. Let’s have a look at how this works.

20% on stable coins. How is this even possible?

The mechanism Anchor is using to get you a 20% yield is truly fascinating. Let’s break it down and make it visual. For that, I would like to introduce you to Kyle and Daniel.

Let me give you some background on the two gentlemen. Kyle lives in Dallas, US. He heard about Anchor Protocol and is annoyed that the inflation is eating up his savings. He wants to get the 20% yield on his 10,000 dollars. A close friend, let´s call him Daniel, told him about Anchor. Daniel is a tech-savvy DeFi enthusiast from Europe that wants to leverage his investment positions. He also heard about Anchor, where he can borrow against his precious LUNA tokens, which he is very bullish on. As he expects LUNA to go up in price, he looks forward to borrowing more in the future against his current stake of tokens.

Both don’t know yet that their faith is connected via the magic of DeFi. So, Daniel seeks to borrow on Anchor, enabling Kyle’s American Dream of financial freedom with 20% APY. Now, this is what happens and how the protocol works:

Kyle goes on Anchor and deposits his 10,000 dollars in UST. He becomes a lender and expects a return of 2,000 dollars on his investment after a year. So far, so good. Now Daniel comes into play. He goes on Anchor and gives (the technical term is bonding) his LUNA tokens to the protocol. To bond, the protocol wants Daniel to exchange his native LUNA tokens for bLUNA (bLUNA is a so-called bAsset, which are fully collateralized loan positions). The value of bLUNA is pegged to LUNA in Dollar. Why is that needed? Well, because the protocol protects the bLUNA with a lock period of 21 days so that it stays liquid (literally, Daniel can’t just run away with his beloved LUNA).

Let’s say Daniel has 2,000 LUNA, which has a value of 10,000 dollars. So he goes on Anchor, mints 2,000 bLUNA, and provides it to the protocol.

Eventually, Daniel can borrow against his LUNA value in dollars. He can borrow up to 40% on his asset and get UST. At max, he can have a borrow position of up to 50% of his asset value (so currently 5,000 dollars). The percentage of his borrow is called LTV (loan-to-ratio value; you are invited to forget that nerd-knowledge and keep on reading). Of course, Daniel must pay interest on the borrow. Where does that UST come from? Well, that UST is basically taken from the lender Kyle.

However, where is the 20% created for Kyle? Anchor Protocol has two mechanisms to achieve this. The first is driven by taking advantage of the proof-of-stake mechanism of the collateral position of Daniels bLUNA. The second is to create an interest in the borrowed value from Daniel. So it takes an interest in the borrowed value, so the 4,000 Dollar Daniel took (from Kyle).

In an optimal environment, the protocol creates more than 20% yield as a whole. Take a pen and let’s calculate together: The staking rewards of LUNA are currently 14% (Check current values here). So, the protocol can create 14% on Daniel’s 10,000-dollar LUNA value. This is 1,400 dollars. On top, it takes 15% on Daniels borrow. Remember, the borrow position was 4,000 dollars. Thus, the protocol captures 600 dollars. Together, this is 2,000 dollars created out of Daniel’s LUNA position.

2,000 dollars? Sounds familiar, doesn’t it? Yes, because those are precisely the 2,000 dollars Kyle gets for lending 10,000 UST to the protocol. The beauty of #DeFiLife!

WIN-WIN? Is everybody happy? Almost, as we also have to talk to Mr. Liquidator.

There is one caveat. As much as Daniel likes to say “in LUNA we trust” before he goes to bed, he takes a risk borrowing against his asset. So if his LUNA loses value against the dollar on the market, he might get liquidated to stay below the 50% LTV threshold.

Liquidation means that the protocol takes the bLUNA and sells it on the market. By doing so, the protocol maintains the deposit safety by paying off debts at risk. Let’s quickly touch upon the why and have a look at the numbers.

Suppose LUNA drops 25% in value (possible in crypto markets in a few days). In that case, the value of Daniel´s position falls to 7.500 dollars. However, as he has borrowed 4,000 dollars, his LTV goes up to 53%. So, all things considered, at the current rate, the protocol won’t be able to pay Kyle 20% for lending.

This is what happens next: Either (1) Daniel provides more LUNA to the protocol, to go back below 50%, or (2) he pays back part of his loan with UST, or (3) the mighty Mr. Liquidator, let’s call him Do for a moment, comes in and sells Daniels LUNA on the market. Do gets the LUNA at a premium from Anchor (in a bidding process against other Liquidators). He sells so much LUNA on the market as needed to repay Daniel’s position until he gets back under his 50%. (Please note: Only loans with a collateral value over 2,000 UST can be partially liquidated. Also note: Yes, also at a rate of 49%, the protocol would be at a net minus. So, for simplicity reasons, and because the story worked so well with Kyle and Daniel, we kept it like this. No worries, we will come back to his point at the end).

Why would Daniel take this risk? Glad you asked. Well, he could be less greedy and loan less than 2,000 dollars. However, as he wants to make most of his assets, he wants to be as effective as possible. Also, Anchor wants him to take the risk. As the protocol can make more yield with more borrowing to please the upcoming armada of Kyle’s (he has a big family), which is appearing on the horizon. To achieve that, Anchor Protocol has a reward system to subsidize a high borrowing rate. Let’s become nerdy for a second. Pardon me for quoting the docs (the following sentence is too good not to be used):

“The protocol leverages bAsset rewards to catalyze a positive usage cycle: subsidies incentivize new stablecoin deposits, lowering the borrow rate, which incentivizes more bAsset-collateralized loans, and enables more bAsset rewards to be collected.” (Link)

That means that right now, Daniel is rewarded with tokens to borrow more against his assets. Those rewards that create a positive cycle are paid in Anchor Tokens (ANC), the native token of the protocol. And here is the kicker: If the protocol makes less money than needed to please the armada of Kyle’s, the rewards go up. If the protocol is net positive, the rewards go down. If the protocol creates gains, it says thank you, takes the additional profits and creates a yield reserve for bad times (I wanted to get his sentence in, and now is the time! “Don’t fear the bear! Anchor is here”).

Got it! 20%! So, what do I need to do to get them?

I have been frank with you until here. What I haven’t told you is that Kyle is a person in real life. And Kyle really wanted to get started with Anchor after I talked to him (like three weeks before I have written this text). So, I created a short video for him that you find below. There you can see how the process described above works.

In a nutshell, if you are Kyle: Load up UST on your Terra Station Wallet. Go on Click on “Deposit.” Done. Happy stable yield farming.

If you want to see Daniels’s story (his name is surprisingly similar to mine), here is his version:

  1. Load up on UST on your Terra Station Wallet. Go on .
  2. Mint bLUNA. Go to and provide bLUNA.
  3. Borrow against your collateral.
  4. Go to to claim your rewards.

Please find below an overview as a flow chart to see all your possibilities on Anchor Protocol. If you are more of a fan of videos, feel free to see the full Anchor Protocol breakdown at the end of this article (Link)

So, Anchor Tokens as Rewards. Thus, they need to have a market value to be distributed, right?

Before we wrap up our Anchor journey, we have to talk about the Anchor Token that Daniel receives as a reward. He is free to sell the token on the market and to receive the equivalent in any other coin. But, of course, if everybody would do that, the token price would go down.

That’s why there is more to ANC. The Anchor Token is the governance token of the protocol. Holders can create and take part in the governance of the protocol. The more people use the protocol, and thus the more additional bAssets are whitelisted, the more people would like to have a saying in the future of the protocol. Additionally, the token captures part of the yield created by the protocol. In case you want more details, feel free to check the excellent Docs:

Well, ok. One more thing, what about the future and the safety of all of this?

It’s time for a wrap-up. First, let’s have a look at the current state of the project and start with security. For newcomers, the security of their assets is critical to get started with a crypto project. For Anchor Protocol and the Terra Ecosystem, there are two takes on security.

On the one hand, the ecosystem’s success is tied to the peg of the UST to the US dollar. UST is an algorithmic stablecoin. Thus, the risk of de-pegging comes to mind first (more after the case of TITAN). With LUNA as a volatility absorber for UST, the system still needs to stand the test of time. However, the black swan event during the last crash in mid-May 2021 showed the robustness of the Terra Ecosystem and the grand design of the UST.

On the other hand, you have the smart contract risk. What I mean by that is that no matter how much we trust all developers and have good faith in the work of Terra, there is always a risk for a bug. A malicious actor might take advantage of this. I think it’s valid and needed to be talked about. We are all still very early adopters. Anchor is a few months old. However, as early adopters, we get paid to offset the risk in additional yield.

As already outlined with the small example of Daniel and Kyle above, the possibility of the protocol to create value and yield is vital. This topic is tied to different dimensions which stay opposite to each other.

The Anchor Protocol is probably one of the most ingeniously designed marketing tools ever seen. Why is that? Well, the Terra Ecosystem is created on the growth of stablecoins. The Anchor Protocol is the best stable yield possibility on the market. Thus, the demand for UST will most likely increase, as there is no better, secure, and accessible opportunity on the market. This becomes even more obvious with the implementation of Orion Money, which opened the gates for Ethereum based stablecoins like USDT, USDC, and DAI to the benefits of the protocol. This is healthy, as every asset will be conveyed into wrapped UST to interact with Anchor. Let´s see if the protocol could extend beyond dollars to please other citizens from countries with strong currencies like the Euro.

However, more players on the lender site require more borrowers. Since the May crash, the protocol runs on a net minus using the yield reserve to hold the 20% APY. Luckily, the yield reserve has been filled since its inception during the bull run (link to the reserve). However, the borrower side desperately needs more assets. This can be accomplished by adding more LUNA tokens, an increase in the LUNA market value, or finally, and most importantly, by the implementation of new proof-of-stakes assets. bETH, so Ethereum, seems to be on the horizon. The test of time will tell us if the protocol can create enough borrowers to be sustainable. And no worries, even if the yield reserve runs out, the protocol will pay the lenders whatever is generated via the value capturing process.

Either way, Anchor is an excellent tool, which lives from a straightforward interface, which creates a stable 20% APY position literally in two clicks. So, what more to demand from a ground-breaking protocol to onboard new members to our DeFi and Lunatics family? I would say that it lays the groundwork to finally onboard/anchor grandma and grandpa. And if you want to show them the figures in a quick way, be sure to check out this amazing online tool:




#sport & #blockchain enthusiast. #generationY and #europe as my roots. #techsavvy by default. Twitter: @danku_r. YouTube: danku_r