Cosmos, Polkadot, and Terra unveil Anchor, a new DeFi lending protocol

At a panel held at the Unitize blockchain conference, representatives from the Cosmos, Polkadot, and Terra networks unveiled Anchor, a new DeFi savings product built on Terra that offers yield on stablecoin (Terra) deposits powered by staking rewards from PoS blockchains. The protocol will take those stablecoin deposits, and use a portion of those deposits to acquire staking positions on different PoS blockchains. Anchor acquires stakes by offering stablecoin loans overcollateralized by liquid staking derivatives. The underlying economic logic is similar to a commercial bank that keeps a reserve to facilitate withdrawals while putting the rest of capital to work. The APR on Anchor will be the weighted average of staking yields on supported blockchains multiplied by the cost of overcollateralization to secure the staking positions.

Initially Luna, whose staking rewards are funded by transaction fees incurred by payment apps running on the Terra blockchain, will be the only collateral available on Anchor. Version 2 of Anchor will support multiple collateral PoS tokens. The group argues that yields on Anchor will be superior to existing DeFi protocols because PoS chains theoretically have steadier block rewards via transaction fees and inflation, leading to a more dependable APR.

“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.” - Anchor Whitepaper

The newly formed Interchain Asset Association (IAA) will provide the initial governance around Anchor, with Do Kwon (Terraform Labs), Zaki Manian (Cosmos), and Jack Platts (Web3 Foundation) serving in the steering committee. The IAA eventually plans to decentralize governance around the protocol via the distribution of a governance token to the protocol’s users.

Why it matters:

• DeFi is hot; however, nearly all the activity so far is taking place on Ethereum. The announcement of a new lending protocol built on Terra and supported by Polkadot and Cosmos is an attempt to break into the playing field.
• Once Anchor supports other chains like Polkadot and Cosmos, stakers on those networks will be able access liquidity on their otherwise illiquid staking collateral.