Anchor Protocol (ANC) is a lending and borrowing protocol that aims to provide compensation on stablecoin deposits. It allows lenders to deposit their UST and receive rates on their holdings while benefiting from low volatility. Borrowers, on the other hand, can convert their LUNA collateral into productive assets without relinquishing control. The protocol seeks to attract risk-averse individuals looking for high-compensation, low-volatility opportunities and increase demand for UST. This, in turn, aims to advance the adoption of UST as a stablecoin and subsequently the adoption of the Terra project in the DeFi space.

Anchor Protocol operates by connecting borrowers and lenders. Lenders deposit their UST and earn compensation, while borrowers can bond their LUNA tokens and receive bonded LUNA in return. They can borrow up to 60% of their deposited collateral in UST and pay a compensation rate that is slightly higher than that paid to lenders. The protocol uses revenue from the spread between borrowers’ and lenders’ compensation rates to earn staking rewards on Terra. The Anchor Yield Reserve is the protocol’s treasury that covers its expenses when rates have not reached a stable equilibrium.

Anchor Protocol has several potential use cases. It can serve as a savings product for users seeking passive income with low price exposure. Users can deposit Terra stablecoins and get stablecoins in return, thereby avoiding the high volatility of most crypto assets. Anchor’s deposit compensation rate stabilization mechanism aims to provide additional protection from volatility by providing stable compensation. Users can also leverage their positions by putting their assets as collateral to borrow stablecoins and acquire more of the same asset. Additionally, users can participate in the Anchor liquidation pool, a higher-risk, higher-return product that provides liquidation financing for Anchor debt positions.

Anchor Protocol was established by Terraform Labs, a South Korean fintech company founded by Daniel Shin and Do Kwon. Terraform Labs is also behind the Terra layer-one blockchain that operates in the DeFi space. Before launching Terraform Labs, Mr. Kwon was CEO of Anyfi, a startup providing decentralized wireless mesh networking solutions, and he previously worked as a software engineer for Microsoft and Apple. Mr. Shin co-founded and headed Ticket Monster, a major South Korean e-commerce platform, and also co-founded Fast Track Asia, a startup incubator that helps entrepreneurs build fully functional companies.