Anchor Protocol (ANC) was a decentralized lending protocol built on the Terra blockchain that enabled users to deposit UST (TerraUSD) and earn approximately 20% annual yields. The protocol connected lenders seeking stable returns with borrowers who locked crypto assets as collateral.
How It Worked
Users deposited UST to earn interest, while borrowers pledged bonded assets (bLUNA, ETH, ATOM) to take out stablecoin loans. The protocol's "Anchor Rate" was designed to provide stable yields by algorithmically adjusting reward distribution between borrowers and lenders. Interest payments came from staking rewards generated by collateralized assets.
Key Features
- High Fixed Yields: Offered ~20% APY on UST deposits, far exceeding traditional money market rates
- aTerra Tokens: Deposit receipts that automatically accrued interest
- ANC Governance Token: Used for protocol voting and rewards distribution
- Unsustainable Economics: Required $6 million daily subsidies by April 2022 to maintain yields
Why It Matters
Anchor's collapse demonstrated catastrophic risks of unsustainable DeFi yields. By concentrating 75% of all UST supply ($14B of $18.7B) in a single protocol dependent on continuous capital inflows, it created the conditions for Terra's death spiral. In December 2025, founder Do Kwon was sentenced to 15 years for fraud, with prosecutors characterizing Anchor as a Ponzi-like structure. New regulations (GENIUS Act, MiCA) now explicitly prohibit stablecoin yield payments to prevent similar schemes.
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