Staking bETH in Anchor protocol

By October 9, 2021DeFi
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Every Anchor/Luna fan got excited about a recent news piece — “Anchor protocol hitting $4 billion TVL”. Anchor achieved this milestone around six months after its launch. This achievement crowns Anchor protocol as one of the most promising and robust protocols in Defi.

Source: Cryptoslate news

Apart from the best yields and trustworthiness that anchor provides, a flood of money poured into Anchor with users able to stake bETH in it. Let’s do a deep dive into what Anchor is, its features and how to provide bETH liquidity in Anchor.

  1. What is Anchor protocol?
  2. Why bETH s important
  3. Different ways to stake bETH in Anchor protocol.
  4. Conclusion

Interested? Well…read on!

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Anchor Protocol

I have already written an article covering Anchor extensively. You can read it using this link. But don’t worry, I will give you a brief about the Anchor protocol here.

Anchor acts like a savings bank. It aims to provide low volatility, and at the same time, high yield to the asset deposited(UST). Currently, you will receive an 18-20% stable yield on your deposit at Anchor! Better than that money sitting on those banks.

How does Anchor earn those high but stable interest rates? Anchor provides this 20% APY combining two things. In Anchor protocol, you will be able to borrow UST by depositing bAssets as collateral. The borrower later needs to pay interest for his borrowed amount. Also, as the withdrawal is over collateralised, the deposited bAssets are staked in other Proof of Stake blockchains to earn additional interest.

The combination of both earns more than enough to pay 20% to the depositor; the rest anchor keeps at reservation, for extreme periods where there are more borrowings and high deposit, another lucrative factor to use Anchor. Anchor rate, the rate at which Anchor yield tries to stabilise, is set to 20%. If the rate goes below it, Anchor will pull the deposit from the reserve, and the opposite happens if it goes above 20%.

How anchor works

Using anchor SDK, other cross-chain app developers or traditional financial institutions can take advantage of Anchor’s 20% savings rate. I have written an article about Anchor SDK here.

That’s all good for the savings side. Let’s take a look at how we can take advantage of Anchors’ borrow side.

How to use the Anchor’s Borrow side effectively?

Let’s imagine this scenario. You have an appreciating asset in your possession, like gold or your own house. Suddenly you have an emergency need of cash, but you don’t have any savings. What is the ideal thing to do?

If your emergency need is less than the value of your assets, you will go to a bank to use these assets as collateral and apply for a loan. After approval, you will pay interest on your borrowings. This is the best thing to do because your assets may increase in value, and you won’t be able to enjoy that appreciation if you sell those assets.

The same goes for the crypto world. If you have assets like LUNA or ETH, you never sell them! Use them as collateral in platforms like Anchor and borrow against it.

Why is bETH important?

stETH(wrapped version of stETH is bETH) is the most liquid token in crypto, with liquidity above $2+ billion. Channelling some of this Liquidity towards Anchor will be beneficial to the whole Terra ecosystem. 10% of all staked ETH is staked with Lido.

Let's take a look at the advantages of bringing ETH to Anchor

  1. bETH brings more liquidity to Anchor. From 13th August, when bETH staking started at Anchor, from the data, you can see an increase in TVL.

2. bETH can stabilise the deposit APY of Anchor. When more users provide Liquidity and borrow against it, it will help sustain the 20% APY at the deposit side of Anchor. Flipsidecrypto data proves that the amount of borrowings is increasing at a relatively large amount from 13th August.

3. bETH increases the Anchors collateral bucket. More assets like SOL are incoming!

4. Increase UST demand (by converting stETH staking rewards to it). This is bullish for $UST and $Luna.

Estimate showing the extra collateral increase in Anchor if stETH is brought to Anchor- Source -Anchor Form

How to stake bETH in Anchor?

There are three ways to get bETH and stake it in Anchor.

First method

  • Connect your Ethereum wallet to Lido and enter the amount you want to stake.
  • Click submit. Your ETH will be staked, and stETH will be reflected in your wallet.stETH shows your claim of ETH in Lido.
  • Go to https://anchor.lido.fi/. Here you can convert your stETH to bETH.
  • Enter the amount of stETH you want to convert to bETH and enter your Terra address. Click- Approve-Covert and then Send. Your bETH will be soon reflected in your Terrawallet.

Second Method.

You can get stETH from Curve.fi. Why should anybody do that? Curve offers a better swap rate for ETH to stETH. Current rates are 1 ETH = 1.00779189 stETH. So if you are a whale, you can use Curve.fi to get stETH and convert it via https://anchor.lido.fi/ and send it over to Terra.

You won't be getting the staking rewards at Lido if you use this method.

Curve.fi offers a better swap rate.

Third method

This method is helpful for users with no ETH in their Ethereum wallets, but they are aping into the Terra ecosystem. They can directly purchase bETH from terraswap. The current liquidity for the bETH-UST pair is around 1.8M. So whales stay away!. This process also limits the additional staking reward from Lido finance which is 5%.

  • In the collateral list, you can see bETH. Click the “Provide” button.
  • Enter the amount you want to provide, adjust the LVT according to your risk and click Proceed. Approve the transaction.

How to borrow against bETH and other tips.

If you click the “Borrow” button, you can borrow against the provided collateral, in this case, bETH. Currently, Anchor is paying you for borrowing money after providing collateral as a “promotion”. Current APY is ~15% at the time of this writing!

This 15% will be paid as ANC token, which is Anchors governance token. You can provide ANC-UST liquidity in Anchor to get ~80% APR.

There is also a single Gov staking pool available in Anchor for ANC token, which gives you ~8% APR.

Upcoming Nexus protocol has announced that they will be giving an Airdrop to Anchor Gov stakers. The snapshot will be taken sometime in September.

Conclusion

Bringing bETH to Anchor was one of the best decisions Anchor made recently. It opened a flood of capital to Anchor. Rewarding users in UST increased its used cases too. Improvements such as this helped Anchor to achieve the milestone of $4 Billion TVL.

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