In Part 1 we went through how to use a centralised portal to take advantage of some of the high rates of interest available in DEFI. In Part 2, we went through how to use DEFI yourself and focussed on the anchor protocol. In, today’s final post we go through how you can get paid to borrow money and enhance your return further.
Many well-funded DEFI protocols offer introductory discounts in order to get people using their application. Anchor protocol is no different.
You don’t have to be a maths genius to work out that if the borrow cost or 24.69% is lower than the distribution APR of 39.21%, you are effectively being paid to take out a loan. That is because whilst you are paying interest in USD, you are being given the Anchor governance token (ANC) which at the time of issue with worth 14.51% more. Now, bear in mind you can only borrow ~45c in the dollar against your collateral so you only earn this interest on that smaller amount. Nonetheless, these incentive tokens are being offered by design and you can see the flow of these incentive tokens that flow over the next 4 years below.
Is this free money? Almost….(1) The price of ANC token can go down as well as up (see the screenshot below (2) You can do things like staking with your ANC tokens to earn a yield as well, but that is too complex for this post. So the APY here is just a guide, if you choose to keep the tokens there is that price movement to contend with. If you decide to sell then you will receive an APY closer to that being stated above.
Step by Step process
In order to borrow you need to provide collateral in form of Ethereum or the Terra blockchain’s token, Luna. Remember that the value of your collateral moves up and down and if it moves down too much you either have to top up your collateral or pay back the loan if you don’t want to be liquidated. For every $100 of collateral you can borrow $45 of USD.
Step 1 - Send your bETH to Terra Wallet
Take your Ethereum and go to
https://anchor.lido.fi/
and you will need to wrap your Ethereum (or Staked Ethereum) to the Terra version called bETH (This is just like having a bankers cheque proving to Terra that you own this Ethereum coin on Ethereum).
Step 2 - Deposit bETH on Anchor
Go to https://app.anchorprotocol.com/borrow and scroll down to “bETH” provide. Provide the collateral to the platform
Step 3 - Borrow UST
Now you can borrow the UST and do lend it back to Anchor using the steps in the previous post.
Make sure you check the borrow screen regularly if there has been big moves in the ETH price so you don’t breach collateral limits