Anchor implements a money market wherein depositors lend UST to borrowers and receive a stable yield in return. Borrowers must provide staked tokens on proof-of-stake blockchains as collateral and pay interest to depositors.
In a traditional lending market, banks lend out depositor’s money and gain interest from the borrower. Anchor Protocol is similar except the borrower is anonymous, no credit checks available, and therefore must provide collateral to eliminate loan default risk. If the value of collateral drops within a certain threshold, the collateral can be sold to pay off the loan.
To borrow on Anchor, you must provide collateral in the form of staked tokens. These tokens generate yield, usually around 5–15% APY. Since Anchor is over-collateralized, 200%+ value of loans, it can then turn around and give 18%+ to its depositors. Any additional yield generated collects in a yield reserve that’s used during low market conditions. For these reasons, Anchor Protocol's yield is more sustainable and efficient than other DeFi savings options.
<aside> 🔑 As of December 18th 2021, Anchor’s yield reserves are worth over $76 million.
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The over-collateralized nature of Anchor also means loans are at zero risk of default, which leads to an extremely solvent lending market. There is simply no way for Anchor to over lend.
At scale and over a long period of time, depositor yield on Anchor Protocol will have to drop to accommodate an increase in deposits. That being said, experts in the space state this is a very slow process that takes years to unfold and will probably balance out anywhere from 12–15% APY. Anchor will, as long as there is demand, outperform any traditional savings alternative.
In the meantime, we are consistently exploring additional options to generate a stable yield for our users. Although there is a chance that our APY will decrease in the future, we believe our yield will continue to be among industry leaders.
For a more detailed look at how Anchor works, we recommend reading their documentation.
Email [email protected] with any questions or concerns.
Beema Finance LLC, 2070 N Broadway 4663, Walnut Creek CA, 97596
Legal Disclaimer: Beema Finance offers a seamless connection between users and smart contracts on Anchor protocol, which is a decentralized blockchain protocol powered by Terraform Labs Pte Ltd. Beema Finance does not generate yield (or any form of return) for its users, rather, yields, if any, are generated by the Anchor Protocol.