About Anchor Protocol

977Iti

"LUNA is a miracle in the history of algorithmic stablecoins. Prior algorithmic stablecoin projects either failed within a very short time or were unable to grow significantly. LUNA not only secured its position as the third-largest stablecoin but also managed to establish itself as one of the few companies breaking into the payments sector.

Before its downfall, Terra had a robust financial ecosystem, with two payment systems built on the Terra protocol, CHAI and MemaPay. CHAI had even integrated domestic payment channels in South Korea and had partnerships with numerous businesses, including NIKE Korea and Philips. Within Terra's financial ecosystem, there were active protocols for stocks, insurance, asset splitting, and more. In fact, Terra had already been quite successful in bringing the benefits of blockchain into the real world.

Unfortunately, all this prosperity was built on Do Kwon's scheme, overshadowing the various use cases for UST. Do Kwon pressed the accelerator button with Anchor Protocol, which accelerated Terra's success but also hastened its demise.

Anchor Protocol is a decentralized bank within the Terra ecosystem that offers a very enticing savings product: a 20% APY non-loss UST deposit service (initially designed at 3% APY, but Do Kwon insisted on 20%). In a real-world scenario where banks can't even provide a 1% interest rate, UST offers a 20% APY. This led to the mysterious button for massive UST minting and stablecoin dumping being discovered by Do Kwon.

To sustain this scheme, Do Kwon, in the later stages of Terra, went almost insane, refinancing and buying BTC to maintain UST's annualized returns (there was a proposal to reduce the annualized rate to 4%, but Do Kwon knew that the massive stablecoin dumping was a more significant concern) and UST's stability. However, paper money can't be protected forever. On the night when UST moved from Curve 3Pool to DAI killing 4Pool, when UST liquidity was at its lowest, a well-planned short attack caused UST to decouple. BTC, acting as the second-layer shield, failed to protect UST's fixed exchange rate and instead fueled the short attackers. Thus, the colossal Terra empire collapsed in an instant."