How to stake stablecoins with 19,5% APY in Terra network
According to the Coinmarketcap UST is the third most capitalized stablecoin. UST - Terra network stablecoin with the algorithmic peg. It is time to look at this network closer to understand its uniqueness and why many crypto holders prefer it.
An additional trigger for this article was the news that Anchor - one of the most popular loans protocols, with its incredible 19.5% APY for UST staking reduced the rate.
In this article you'll inderstand:
How linked UST and native LUNA tokens?🔗
So, UST is an algorithmic stablecoin in the Terra network. It becomes popular in a relatively short time. In the Terra network, the stablecoin and the native token are linked, which increases the value of both coins:
LUNA is collateral for UST, holding its peg to the US dollar.
The UST's market cycle causes LUNA burning ad ensures deficit and, therefore, price.
There is a simple explaining how it works:
🔸 In Terra, a $1 LUNA token is ALWAYS 1 UST. Not the dollar, but a UST.
🔸 Imagine that the price of LUNA is $50, so with 2 LUNA, you can buy 100 UST.
🔸 Suppose the price of UST increased by 2 cents to $1.02, and for two LUNA (worth $100), we get 100 UST worth $102. So $2 is profit.
🔸 It is advantageous for the arbitrator to spend the LUNA, get UST, and fix the profit (in arbitration volumes, it is large).
🔸 The LUNA burns, stable go to the market and increase supply. Thus the price falls.
🔸 Because the UST price falls, there is a growing demand, so the price increases again.
The arbitrators sell UST for the LUNA and make a profit.
And of course, the result of all these actions is the LUNA burning🔥 that increases its value and cost. This genius and simple solution helped Terra become one of the top blockchains and popularize LUNA and UST.
Why UST is so popular?📈
Stablecoins are the most important tool for trading, saving, and interacting with the crypto market. UST combines the advantage of stablecoins with the holy grail of cryptocurrencies - anonymity.
UST gives an experience of algorithmic security, which is invisible in practice but warms the soul. Moreover, UST is not the only algorithmic coin, and such a peg method was invented before Terra. But as you can see, just a technical solution is not enough to run a popular token.
Perhaps the final answer in that list, but not the last reason for the popularity of UST. You feel the genius and simplicity of the network at the website, so you want to interact with it and enjoy all its advantages.
What is Anchor protocol⚓️
Anchor and its proficient staking is a strong argument for UST. Anchor Protocol is the pearl of Terra and the first protocol you will hear as a response to the question, «have some free stables, so where can I stake it?».
And indeed, anyone can open dApp and throw their UST under almost 20% APY❗️ and take them back at any moment.
A 5-7% rate is typical for stablecoin staking. Why does Anchor offer a so high APY?
The APY is formed by the protocol borrow fees + reserves Anchor. The rate has been stable for a year, but recently Anchor says that the volume of deposits exceeded the volume of the loans (to 400%) and that the protocol reserves are not enough to pay APY to stakeholders.
🤷♂️Not help even a $450M investing from Luna Foundation Guard. This step only slowed the unavoidable result.
So the team announced the dynamic APY rate, which will vary depending on the ratio of deposits and loans, the level of reserves, and other factors. APY rate will change by 1.5% up or down each month, depending on whether the Anchor reserves increases or fall.
Is that bad? Not so bas as may look. For the rate to fall to 10%, it needs six months of a constant fall if Anchor doesn't do anything to replenish reserves. And even 10% APY is a good offer on the stablecoin's market.