PoS Blockchains Team Up to Launch a DeFi Protocol, Anchor, with Stable Interest Rate on Savings
PoS blockchains have teamed up to onboard liquidity mining through Anchor, decentralized finance (DeFi) platform built on the Terra blockchain. Stakeholders who are part of this initiative include Solana, Web3 Foundation, Cosmos, and Terra itself. This milestone was announced on July 6 in a Medium blog post by Terra; the firm highlighted that Anchor introduces a convenient and straightforward savings product whose value can be easily recognized and derived outside the crypto natives’ world.
This DeFi ecosystem is set to go live in October according to information from a Terra co-founder and will debut a governance token to fuel the network. Notably, such launches have come to define growth in the DeFi space following Compound’s launch, an event that saw this protocol take over from Maker as the leading ETH based protocol until recently. Currently, the total locked value (TVL) in DeFi is over $3.7 billion, with Compound’s contribution at $788 million.
That said, this growing space has failed to integrate stability in the lending and borrowing products, which mostly define the market. This is where Anchor’s cutting edge comes in, the platform’s protocol is designed to offer a principal-protected stablecoin saving tool which translates stable interest rates as well. In doing so, Anchor is optimistic about displacing other protocols whose yield keeps fluctuating. The blog post reads,
“We firmly believe that a stable interest rate is a necessary feature of a savings product with broad appeal. A key limitation of DeFi protocols with savings functionality, such as Compound, Aave, and Maker, is the highly cyclical nature of stablecoin interest rates.”
Just like in yield farming, Anchor will facilitate lending based on the staking of liquid digital assets on various blockchains to act as collateral. The platform’s governance token will likely be named Anchor as well; Do Kwon, one of the co-founders of Terra, has since noted that its distribution will be over five years with no pre-mined coins for the network developers.
Anchor users will have access to Terra’s Money Market, this web smart contract assembly allows for borrowing and depositing of Terra stablecoins. With Anchor set to debut, it will serve as a core building block of the DeFi ecosystem. Users will continue borrowing in the Terra money market, as informed by Anchor’s loan-to-value ratio (LTV). To further standardize the rates, Anchor will use an average rate determined by the demand and supply within its ecosystem,
“The Anchor Rate is defined as an average of the yields earned by borrowers, weighted by the collateral value backing each yield … plays a foundational role in the Anchor protocol: it is the interest rate target for Terra deposits.”
This Terra initiative can scale up quite fast, given the precedence set by its founding partners. Terra, for instance, began just two years ago, kicking off with a $32 million funding in a Binance led round. The South Korea based firm has since risen to fourth place in the Korean payments market as more users resort to its solution, Chai. Though yet to scale into the U.S market, Terra’s move to leverage Solana’s signals the team’s ambition in growing the user base. Speaking to Coindesk, Kwon has noted that they are well on the way to creating more lucrative ways of earning passive income via crypto, a milestone that might as well accelerate Terra’s ambition.