Cosmos, Polkadot, And Terra Team Up to Create “The Reference Interest Rate” Of Crypto Anchor Protocol
Cosmos, Polkadot, And Terra Team Up to Create “The Reference Interest Rate” Of Crypto
July 11, 2020
Cosmos, Polkadot, And Terra Team Up to Create “The Reference Interest Rate” Of Crypto Anchor Protocol
Cosmos, Polkadot, And Terra Team Up to Create “The Reference Interest Rate” Of Crypto
July 11, 2020

Washington DC, USA, July 8, 2020: At a panel held at the Unitize Blockchain Conference, representatives from the Cosmos Network, Polkadot Network, and Terra Network unveiled Anchor Protocol, a new DeFi savings product that offers high and dependable interest rates on stablecoin deposits. Anchor yields are powered by staking rewards from many PoS blockchains, which the creators’ claim can help it achieve stable and attractive returns.

How Anchor Works

Ethereum price and Stable coin Borrowing Ratio

On a high level, early DeFi protocols such as Compound allow users to leverage on cryptocurrencies such as ETH or BAT. There, interest rates are high when demand for leveraged price exposure to these assets are high and are low otherwise. When speculative interest dies down, the APR collapses, making it impossible for users to project future cash flows with respect to opportunity costs of capital.

“While DeFi staples such as Maker and Compound have been revolutionary in creating fully decentralized crypto money markets, the volatility of their interest rates makes them unsuitable to be used as a household savings product. DeFi mass adoption needs the creation of a fully decentralized savings account that offers dependable APR.”

– said Do Kwon, Founder and CEO, Terra

Anchor‘s smart contracts take stablecoin deposits and use a portion of those deposits to acquire staking positions on multiple Proof of Stake blockchains. The block rewards resulting from these staking positions are used to fund passive income for depositors. Anchor’s economic model is analogous to that of a commercial bank: both keep a reserve to facilitate withdrawals and put the rest of capital to work (in Anchor’s case, stakes across the universe of blockchains). As Anchor Protocol yield is powered by block rewards from a diverse set of PoS chains (most of which have steady block rewards via transaction fees and inflation) a much more dependable APR can be achieved for depositors. Anchor projects interest rates on the ballpark of 7-9% per annum.

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The creators plan to initially launch Anchor across the Cosmos, Polkadot and Terra blockchains at the end of Q3 this year and scale across to other PoS blockchains in the future.

IAA and Governance

To provide initial governance around Anchor, the Interchain Asset Association (IAA) is being formed with Do Kwon (Terraform Labs), Zaki Manian (Cosmos), and Jack Platts (Web3 Foundation) serving in the steering committee.

Protocols like Anchor represent a new class of assets that can be created on top of staking. As such, the growing PoS ecosystem has opened a new frontier of asset classes that are now being explored. Thus, the establishment of the IAA seeks to provide a consortium of PoS network participants to create, govern, and de-risk this next-generation of asset classes. The IAA will help secure technical, financial, and social support for its initiatives by leveraging the resources and networks of its members.

The IAA eventually plans to decentralize governance around the protocol (such as deciding which assets will be added, key economic parameters) via the distribution of a governance token to the protocol’s users.

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“The imminent Stargate upgrade opens the door to Interchain Economy, I look forward to working with IAA to bootstrap the fundamental economic primitives in the world interoperable blockchains.”

— Zaki Manian, Cosmos

“Staking liquidity is an especially important problem set for Polkadot because the unbonding period for staked DOTs is 28 days. Projects like Anchor that allow DOT holders to gain liquidity while staking solve a real problem and Anchor’s emphasis on mainstream adoption for this technology is the right approach.”

– Jack Platts, Advisor, Web3 Foundation

Crypto’s Reference Interest Rate

Anchor Protocol representatives believe that the application of a stable interest rate protocol will extend far beyond savings. Similar to how the federal funds rate sets the cost of capital across all financial transactions, Anchor has the potential to become the reference interest rate across the new burgeoning world of PoS blockchains.

“Beyond offering low-volatility yield, Anchor is an attempt to give the main street investor a single, reliable rate of return across all blockchains. The plethora of staking products, each with varying terms and yields, makes DeFi inaccessible and unappealing to average investors. By aggregating block rewards from all major PoS blockchains, Anchor aspires to set the blockchain economy’s benchmark interest rate.” reads the Anchor Protocol white paper.

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For more information visit the official website: www.anchorprotocol.com

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