Anchor is one of the fastest growing Decentralized Finance protocols in the crypto space. In less than a year, dApp has managed to attract a large number of investors. Consequently, the total value locked in it has increased by 1.851%.
Now it competes to be the largest lending protocol, fueled by one simple tactic: APY.
Anchor Introspects
Anchor’s brush with a nearly empty yield reserve last month put things in perspective for the lending protocol known for its high APY.
The 20% Annual Percentage Return (APY) “Anchor rate” exceeds the earning rate of most other lending platforms. This is why investors have chosen Anchor over other protocols.
Interestingly enough, it was the same APY that got Anchor into trouble a month ago. How so? Well, since the start of the market crash, borrowing on the dApp has declined, but deposits continued to rise. This led to an 828% increase in the deposit-loan differential as total deposits are currently UST 8.9 billion while total borrowed is UST 2.4 billion.
The increasing difference between Anchor Deposits and Borrowings | Source: anchor
People continued to earn their 20% APY, but the number of loans from the dApp decreased. In fact, the interest generated also decreased. As a result, the yield reserve was used to maintain the APY, which was nearly depleted last month.
Although the Luna Foundation Guard has injected $450 million into the reserve, the protocol had to come up with a more economic approach to deal with such a situation.
Therefore, to ensure sustainability and greater potential for increasing loan demand, Anchor proposed a semi-dynamic rate a few days ago. This would adjust the earning percentage by increasing or decreasing it according to the status of the revenue reserve.
If the return reserve increased by a certain amount, the APY would also algorithmically increase and decrease as the return reserve decreases.
This new semi-dynamic price would be helpful to avoid another similar case as price action has been very volatile in recent days.
In the case of Anchor itself, the ANC token rose 333.67% in February, but also fell nearly 34% in the past 24 hours. With indicators pointing to a further drop in price, investors can try to take advantage of the 20% Anchor rate advantage.
Anchor Protocol price action | Source: TradingView – Coin-Crypto