How to Borrow $UST Using Anchor Protocol

Anchor Protocol is the first application in the Terra Ecosystem that I have tried using (aside from Terra Station Wallet of course ;-)). I’m here to share with you guys the steps on how to borrow $UST using Anchor Protocol in case you’ll ever need to do so.

By the way, before we continue, please be informed that this is not financial advice and should not be treated as such. I only share on my blog my personal experience in crypto trading and investing among the other stuff that I write about here.

If you need financial advice on any investment, I suggest that you consult a professional financial advisor. And as always, please Do Your Own Research especially if you’re thinking of investing in crypto. Crypto is a highly volatile market.

Anyway, going back to the topic…

Important Update as of May 13, 2022, Friday.

It is with a heavy heart to say that Terra $Luna and $UST has seemed to have failed after $UST lost its peg. The price of $Luna as of the time of writing has been spiraling down starting 2-3 days ago and it’s now at 100% at a loss according to my Binance chart.

This is an important reminder to everyone including myself that crypto is a highly volatile market (Very) and anything could happen at any time. Before the collapse, $Luna was a Top 10 crypto and now… sigh!

Luckily, I have followed the old advice when it comes to investing… only invest what you can afford to lose and always take responsibility for your investments.

I was really hoping that $Luna would be one of my long-term tokens, but it seems that it won’t be the case anymore since it has lost its value. I don’t know if it will recover or not.

Fortunately, I have diversified my small investment portfolio and crypto is not the only investment I have. But still, it’s still painful to see all the gains wiped out in a matter of days.

Here are some related news about what happened (as of the time of updating this post):

Photo by Anne Nygård on Unsplash

Table of Contents

What is and What to do with Anchor Protocol?

Anchor Protocol is like a bank in the DeFi world (on Terra ecosystem). As of the time of writing, you can do the following things with Anchor Protocol:

Deposit $UST and earn 19.4% APY interest
Borrow $UST by bonding your $Luna or $Eth and use it as a collateral
Buy, Sell and Stake $ANC Tokens
Become a liquidity provider by staking $ANC-$UST LP Tokens
Mint $bLuna and hold it in Terra Station Wallet to earn $UST (No staking needed)

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How to Borrow $UST using Anchor Protocol?

For now, I will be sharing how to borrow $UST using Anchor Protocol. Personally, I already have tried doing this twice and I will share my personal experience in a bit.

Here’s the step-by-step guide on how to borrow using Anchor Protocol.

Have $Luna and $UST in Terra Station

$Luna and $Eth are the only accepted collaterals as of the time of writing. I’ve seen on Twitter that more tokens might be accepted in the near future as collateral for a loan but as of this time, you can only use $Luna and $Eth.

You can buy $Luna from any crypto exchanges that have them. In my case, I bought my $Luna from Binance.

From your preferred exchange, withdraw your $Luna and deposit it to your Terra Station wallet. If you don’t have a Terra Station Wallet yet, check my previous article on how to create one here.

$Luna will be used as the collateral for the loan after bonding it and $UST will be used to pay for gas fees.

If you don’t have $UST, then exchange a bit of your $Luna to $UST using Terra Station so you can use $UST to pay for gas.

Connect Terra Station to Anchor Protocol

Once you have your $Luna and $UST tokens on your Terra Station Wallet, connect your wallet to Anchor Protocol by going to this website – https://app.anchorprotocol.com/.

Click on ‘Connect Wallet’ and it will show you a variety of options on how to connect to Anchor Protocol. Personally, I use Terra Station Mobile Wallet, and to access Anchor Protocol I always use the ‘Wallet Connect’ option.

Once you click on ‘Wallet Connect’ a pop-up box containing a QR code will appear. Scan it using your Terra Station Mobile Wallet to access Anchor Protocol.

The ‘scanning’ icon is located on the upper right side of the mobile app. As soon as the app recognizes the QR code, it will confirm (via the mobile app) if you want to sign in to Anchor Protocol.

As soon as you confirm, you’re now logged in to Anchor Protocol and you can start using it.

Mint $bLuna and Provide it as a Collateral

Before you can borrow $UST, you have to ‘Mint’ $bLuna first. Minting $bLuna means bonding your Luna. Technically it’s staking $luna to a validator in order to create a $bLuna.

Anyway, in order to bond your $Luna. You have to click on ‘bAsset’ and then on the lower part of the page, click on the $Luna/$bLuna box.

The next page will give you an option to ‘Mint’ or ‘Burn’ $Luna. Click on ‘Mint’ and type in the amount of $Luna that you want to convert (bond) to $bLuna. And then click on ‘Mint.’

By the way, please note that the $Luna and $bLuna exchange rate is not always 1 is to 1. You can see the current exchange rate on the screen where you are minting $Luna.

If you want to learn more or if you want to know more details about $bLuna, click here.

Now that you have $bLuna, go to the ‘Borrow’ tab and scroll down and click on ‘Provide ($bLuna)’ so you can use your $bLuna as collateral for the loan.

I’m going to try it myself so you can see what it looks like. In this example, we’re going to provide 3.29 $bLuna. As of the time of writing $Luna costs $56.97 per token.

As you can see on the screenshot below, out of the 3.29 $bLuna (approx $187 as of the time of writing), I am allowed to borrow a maximum of $150.

When you click on proceed, it will trigger an authorization request on your Terra Station Mobile App. Just confirm it to proceed with the transaction.

Once the transaction pushes thru, then you will see a collateral value on the ‘Borrow’ page. This value is equivalent to the current price of the $bLuna you provided.

Don’t be confused if it changes because it reflects the current price of $bLuna.

Borrow

Once the collateral is provided, you can now go ahead and borrow $UST. You can do so by clicking the ‘Borrow’ button just above the collateral value box.

When you click on the ‘Borrow’ button a pop-up box will appear that shows very important details that you have to pay attention to.

As you can see, the recommended level is at 75% (and below). Anything above that, you are very much prone to immediate liquidation (unless $Luna continues to go up and does not retraces back down).

Below the borrowing limit, you will also see the estimated $bLuna liquidation price.

What does it mean?

As of the time of writing (and placement of the collateral), the value of $Luna is at $56.97 per token. The value of $bLuna is pretty much almost the same as of this time. If $Luna falls from $56.97 to $42.541 then you will be liquidated (either full or partial depending on the amount of your collateral).

When you get liquidated, Anchor Protocol will sell your collateral (partial or full) automatically in order to pay for your loan.

You can see a very detailed explanation about Anchor Protocol Loan Liquidation on this link.

A lot of people borrow way below 75% to minimize the risk of getting liquidated. As you know, crypto fluctuates A LOT!!!

Once you have decided on the amount that you want to borrow then just click on ‘Proceed’ and that’s it.

You will see the borrowed $UST on your Terra Station Wallet and it will also be displayed on Anchor Protocol.

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My Personal Experience in Borrowing on Anchor Protocol

Last month, I have decided to try using Anchor Protocol for the first time and minted $bLuna and used it as collateral.

The process is really smooth and the website is very intuitive. It only looks complicated on this post because I took a screenshot of almost every step but once you actually do it, it’s really simple and easy.

Anyway, let’s get back to what happened to my loan. At that time, the price of $Luna was around $80+ and my estimated liquidation price was at $35. I was quite confident that it wouldn’t get hit.

$35 wasn’t hit.

However, just a few days after I made my first loan, the entire crypto market started dipping and $Luna’s price plummeted as well.

There was this day when I thought that it was about to go back up, so I made another loan without adding collateral which pushed my liquidation price to $49.

I got greedy because I thought $Luna was on its way back up on that day. Timing the market isn’t really a good idea hahaha! Lesson learned!

I also wasn’t at home and didn’t have access to my laptop when it happened. Thus, I wasn’t able to monitor it closely.

To cut the long story short, I got liquidated.

The price of $Luna by the end of last month dipped to the level of $44 and my liquidation price was at $49.

Why did I make a loan and what did I use it for?

I was actually using my loan to buy more $Luna and I ended up with less $Luna because of my greed hahaha!

Luckily, it’s just a few $Luna tokens since I was just testing the waters. And it’s a partial liquidation only. This means I got back some of the $bLuna that I used as collateral.

But nevertheless, it’s a lesson that I need to remember well in order to help me craft a better plan in utilizing DeFi apps such as Anchor Protocol to my advantage.

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Final Thoughts

I think Anchor Protocol is an awesome app but I am not sure if I will borrow again (perhaps, but not that soon). My first ever liquidation experience got me really scared hahaha!

Looking back, if I only stayed on my initial plan, then I wouldn’t have gotten liquidated. But greed got the best of me in this particular transaction!

Anyway, I’m still using Anchor Protocol though to mint $bLuna so I can earn $UST just by holding it in my Terra Station wallet.

I’m also using Anchor Protocol as an alternative savings account by depositing $UST. I do wish though that they have a mobile app so it will be more convenient to use.

I’m quite excited about the future of Anchor Protocol. I’m sure that there will be more integrations in the near future that will make it work seamlessly with other TradFi and DeFi products and services.

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