5 Alternatives to Anchor Protocol

First off, we know a lot of people got hurt by the Terra ecosystem collapse due to the de-pegging of their native stablecoin UST. This blog doesn’t share similar schemes where yields are heavily subsidised or that make use of risky algorithmic stablecoins. Instead we share alternatives where interest (or yield) is generated organically and is still tenfold better than a traditional bank. The rates we share are based on USDC which is issued by a consortium of companies including Coinbase and Circle. USDC is backed 1 to 1 with US dollars through cash and short term treasury bonds. Its backing is regularly audited by Grant Thornton, a leading audit firm.

We know that a big draw for Anchor was also the low transaction fees on the Terra network, so all of the protocols mentioned in this blog post are available on Ethereum Layer2’s, Polygon or other lower cost networks like Solana.

Though DeFi had a bad moment with Anchor, the technology is ground breaking and provides savings rates significantly higher than your bank. In a time of high inflation, you shouldn’t discount the importance of DeFi and the impact higher savings rates can have. However you should always research and understand where and how yields are generated, and aim to save with safe and sustainable protocols.

So before we cover some of these Anchor alternatives, we’ll quickly cover what Anchor was and how the yield was generated.

Key points

• Anchor Protocol used UST which is an algorithmic stablecoin that was not backed by assets
• Anchor’s 19.5% interest rate was subsidized by centralized entities unlike other DeFi protocols which generate interest through demand for borrowing and providing liquidity
• You can earn higher interest rates in DeFi than through traditional finance, but beware of artificially inflated rates that are unsustainable
• When looking for a DeFi savings provider, look for transparency of where your money will be held, how the interest is generated and what the stablecoin being used is backed by

What is Anchor and How Did it Generate Yield?

Within DeFi, most lending protocols generate their interest rates by loaning out users deposited assets and paying savers a chunk of the interest accrued. This process is handled by smart contracts (code) which are programmed to perform certain tasks and allow the interest rates to be calculated and updated automatically based on the demand for borrowing. Interest rates are updated each time a new block is added to the blockchain – which for Ethereum is approximately every 13 seconds, allowing for a real time, peer to peer, decentralized financial system.

Anchor was the main lending protocol on the Terra network and paid a fixed rate of 19.5% for UST deposited into its protocol as savings. When looking at borrowing activity on Anchor, the interest users paid on loans was around 10%, meaning the additional 9.5% yield was subsidized in order to grow the protocol and adoption of the native Terra stablecoin UST. A warning sign came in February, when Do Kwon, founder of the Terra ecosystem confirmed that a 450m cash injection had been made into the Anchor reserves to support the interest rate.

As per Coin Telegraph, “The protocol’s reserves had recently dwindled to as low as $6.56 million as there wasn’t enough borrowing demand to keep up with an influx of lenders. When such an imbalance occurs, the protocol must tap into its reserves in order to pay lenders the promised yield. From the beginning of December to late January, Anchor’s reserve funds fell by about $35 million.”.

While the collapse of the Terra ecosystem wasn’t due to a drop in yield and therefore demand for UST, it’s likely that this would have occurred in the near future as the reserve was depleted. The yields we share in this article are generated by organic demand for borrowing or by fees earned through providing liquidity. Some protocol rewards may be available but we’ve separated them as APR for transparency.

The Anchor Alternatives

Aave

Aave is the leading lending protocol on Ethereum and EVM-based chains with over $14B USD deposited at time of writing across 7 networks. Within Aave users can earn interest or borrow popular tokens including ETH, USDC, USDT, UNI, and WBTC. 

While rates on Aave may be lower than Anchor, it is seen as the safest protocol within DeFi having been audited by multiple leaders in the space including SigmaPrime, Trail of Bits, and OpenZeppelin.

At time of writing savings rates on stablecoins are between 2-4% plus an extra 0.25% in stAAVE tokens which are staked tokens that govern the Aave protocol.

Available in Minke: Yes

Available Networks: Ethereum, Polygon, Arbitrum, Optimism, Fantom, Avalanche, Harmony

TVL (Total Value Locked): 14.2B

USDC APY (Polygon): 2.26%

APR: 0.25% stAAVE

mStable

mStable is a protocol that builds autonomous and non-custodial infrastructure for stablecoins. mStable unites the popular stablecoins (USDC, DAI, USDT) into one standard (mUSD) to earn a standardised yield from lending protocols like Aave and Compound that’s boosted by earning additional swap fees from when users use the protocol to swap between stablecoins, like exchanging DAI for USDC.

mStable is a great savings option as the majority of yield is generated and secured by the leading lending protocols in Aave and Compound. Savers then get the benefit of extra yield generated by providing liquidity on swaps.

mStable has been audited by leading firms in Consensys and Peckshield.

Available in Minke: Yes

Available Networks: Ethereum, Polygon

TVL (Total Value Locked): 62.1M

USDC APY: 2.26%

APR: 2.25% MTA

Toros

Toros is a relatively new platform on Polygon that operates dynamic vaults with various investment strategies. Its infrastructure is powered by popular DeFi protocols in dHedge, Aave, and 1inch. Available vaults include leveraged long or short strategies for BTC and ETH. 

The stablecoin vault on Toros is the most interesting for savers as you can deposit USDC and the vault will provide liquidity to popular decentralized liquidity pools like Uniswap, Balancer and Sushiswap. This vault is also great for savers in islamic countries where earning interest from lending is against religious beliefs. Yield generated in the stablecoin vault is purely generated by providing trading liquidity.

The Toros platform is very new so it does come with risks, however it is backed by trusted infrastructure in dHedge and Synthetix.

Available in Minke: Coming Soon

Available Networks: Polygon

TVL (Total Value Locked): $2.4M

USDC APY: 3.41-7.62%

Solend

Solend is the leading lending protocol on Solana with $928M deposited at time of writing. Solend takes a different strategy than Anchor, rather than incentivize borrowing through subsidized interest rates for savers, Solend incentivizes borrowers onto the platform. While borrowing rates for stablecoins like USDC are much higher than Aave (up to 7.3% at time of writing), Solend gives up to 3% in yield to borrowers in its native SLND tokens. This reduces the cost of borrowing to under 5% making it an attractive protocol for borrowers to get leverage while in turn giving higher than average yields to savers.

Incentivized rates on either saving or borrowing however do not last forever, and when reserves run out rates on saving will likely reduce as borrowers go elsewhere. The Solana chain has also suffered major outages over the past few months which results in dangerous environments for lending and borrowing as the chain is frozen while pricing still changes. As a borrower this could mean you’re unable to close a position before liquidation. The protocol has been audited by Kudelski.

Available in Minke: No

Available Networks: Solana

TVL: $928M

USDC APY: 5.13%

Yearn Finance

Yearn Finance is one of the OG DeFi protocols that has long offered competitive yields through savings vaults on Ethereum. Yearn has automated strategies that move your deposited capital to the best earning protocols at the time to maximise the yield that you can earn. The lending protocols where your assets move between include Aave, Compound, dydx, and Fulcrum.

It’s now available on Fantom and Arbitrum as well so you can earn yield with lower gas costs.

Available in Minke: No

Available Networks: Ethereum, Fantom, Arbitrum

TVL: $1.46B

USDC APY: 1.80%

Conclusion

As you can see, many of these protocols are also available to use in our gasless DeFi wallet – Minke. We’re the easiest way to save, earn and invest with DeFi on mobile. The protocols we give access to are always battle tested with sustainable yields. We never went near the Terra ecosystem and all our users have remained earning yield as normal throughout the volatility in the market during the time of writing. 

If you’re looking to start saving at rates significantly higher than your bank. Download our app on iOS today.

This article should not be considered as financial advice or a recommendation to you in respect of the holding, purchasing or selling of digital assets. It does not contain all the information that is or may be material to you and and does not take into account your particular objectives, financial situation or needs. This article has been made solely for information and education purposes.

Minke is a non-custodial wallet and therefore does not hold any funds or provide any financial services. Minke provides software that connects its users to various DeFi protocols, all of which entail risk. The user retains ownership of their funds at all times, and Minke does not provide any type of financial advice. All users are responsible for their own decisions and should familiarise themselves with the risks involved, as well as how to mitigate them.