Anchor Deposits

You can deposit UST to Anchor and earn interest, always around 20% APY. This is very interesting for two reasons. First, 20% APY with 'no risk' is huge, at your house bank you get of course less. And second, this 20% are more than you have to pay for borrowing UST from anchor.

Anchor Borrows

You can borrow UST from Anchor after depositing bLuna or bETH as a collateral. Soon there will be bTOM and bSOL as i heard :-) Depending on which asset deposited as collateral, its quantity and its price, Anchor calculates a loan-to-value ratio (LTV) for each asset. This LTV indicates the fraction of the collateral’s value that can be borrowed. You can borrow a max. of 60% against the collateral, recommended is a max. of 45%. I would suggest less ... If LTV jumps over 60% you get liquidated. 60% and even 45% could be very risky because of the well known crypto market volatility. If the price of your collateral / asset drops too much, there is a possibility of liquidation depending on your LTV.

Using visuals, compare borrow volume and deposit volume over that time period. BONUS: What relationship can you identify between borrows and deposits? What might be driving this relationship?

What we can see, when comparing borrows and deposits, is that there is a strong correlation in volume, beside a few spikes. The reason for this the possibility of earning yields double. First for borrowing UST you pay low fees and you get rewarded with ANC. And second for depositing those UST into Anchor you can earn again 20%. For this reason it makes totally sense to borrow UST from Anchor and deposit to Anchor again.

What we also see is, that the volume of borrows and deposits is strongly dependent on the prices of ETH and Luna. This is because of the possibility of liquidation when prices are falling too strong and a too high chosen LTV.

What is Anchor protocol?

The Anchor protocol is a simple and robust savings protocol built on the Terra blockchain.

Anchor offers a few ways to earn interest, yield, ... you name it. In this case I will focus on two main features, borrowing and depositing.

Spikes

When we look at the Anchor: Borrows & Deposits chart, we see two huge spikes in December, one at the 4th and one at the 21st. Both were caused by a few single individuals, as we can see in Anchor: Deposits - December spike and Anchor: Borrows - December spike.

• December 4th: 455 Million USD in borrow volume.
• December 21st: 693 Million USD on deposits.

Why these outliers?

On one day we had big price drop on the whole crypto market and on the other prices were increasing strong, see also the Luna & ETH price chart. On the 4th it looks like people use borrowed UST to buy for example the dip, because on this day the volume of deposits was not high as the borrows, so people must have used money for different things. And on the 21st people deposit their UST in save haven, Anchor. But I couldn't find a reason for this behavior :-)