How to earn up to 42% on your ETH with Terra, Anchor, Lido (August 2021)

Lido-Anchor-Terra-42apy-UST-stablecoin-eth-featured-image

The route: Buying bETH (a token for Terra ecosystem, pegged to the value of ETH, that you can borrow against), borrowing on Anchor and then staking UST. Wait. How?

Ho boy, it has been a long time since I felt like a boomer. But the following route on the Terra ecosystem to earn up to 42% on my ETH, with minimal gas fees felt like trying to get the A38 file as in Asterix and Obelix.

Why did it make me feel old ? Partly because I couldn’t find one very good and centralized source of info that was updated, and that tried to avoid the horrible eth gas fees… The other major issue : everyone will try to make you use Lido, because of their Lido referral code. But that’s plain robbery due to eth gas fees. But if you don’t care about gas fees, go on and follow this tutorial: A Guide To Collateralizing bETH in Anchor Protocol | Lido Finance

So here is my tutorial for the simplest and cheapest way to earn up to 42% on your ETH with Terra and Anchor ecosystem, with minimal eth gas fees.

Create your Terra address

It’s a bit annoying, you can’t have it in your metamask like the BSC, you need to either download the official Terra software to install it on your computer (I don’t recommend that), or install the official terra chrome extension. The chrome extension is basically a metamask but for Terra.

terra-station-wallet-chrome-download
Download on the terra website the official wallet chrome extension
 

Go on this website, and choose the way you want. Things are pretty straightforward after that to create your first Terra address. It basically resembles what you do for an eth address, with the seed phrase to keep etc.

Buy LUNA and Withdraw for Cheap

We are going to use either Coinbase, Binance or Kucoin. That’s where you will get cheap withdrawal fees, without getting on shady exchanges.

Go on your favorite exchange depending on your country.

For non-Americans

  • Buy LUNA on Binance and withdraw to a terra address (fees 0.02 LUNA),

Or

  • Buy UST on Kucoin and withdraw to a terra address (fees 4 UST, you can also buy LUNA, but fees are 0.1 LUNA)

For Americans

It’s just a bit more complicated/expensive:

  • Buy wLUNA on coinbase, it’s called wLUNA (because it’s an erc20 token on the eth blockchain for now).
  • Withdraw the WLUNA to your wallet like metamask or Coinbase wallet (I personally use the coinbase wallet with my coinbase account, I don’t know if that’s rational?) You are going to need to bridge your wLUNA from the ETH blockchain to the Terra Blockchain. As always, don’t forget you will need some eth to pay the gas fees for that (I paid $6 in fees last time).
  • Go to Terra Bridge for the bridge.
terra-bridge-eth-luna
Terra bridge is used to transfer ERC20 token to the Terra ecosystem

Buy bETH

Now, we are finally on the terra ecosystem. Enjoy the cheap fees. Now, we still want to be exposed to the ETH, but on terra ecosystem. You will need to buy bETH. I only found one way: Terraswap

If you have bought UST

Good news, you can directly buy bETH from them. I recommend to also swap some of your UST for like $5 of LUNA, and to keep like $5 of UST, just in case you will need them later to fuel some other swaps. Just like on the ETH blockchain you always keep some ETH

If you have bought LUNA

You first need to swap them to UST and then swap them to bETH. Again, I recommend to keep like $5 of LUNA and to keep like $5 of UST, just in case you will need them later to fuel some other swaps. Just like on the ETH blockchain you always keep some ETH

terraswap-luna-ust-beth
Terraswap is used to swap your LUNA or UST to bETH
 
And now, you will find plenty of tutorials to cover the rest of the journey. Here is a good one that was done with bLUNA, it’s mostly the same except we are using bETH. Don’t mind the cringe image, I’ve put the timepoint to when it concerns us.
 

I will briefly cover here the route for bETH.

Borrow against bETH

You just need to go on this page: Anchor (anchorprotocol.com)

terra-anchor-borrow-withdraw-30-apy
With Anchor, from Terra ecosystem, you can borrow up to
30% against your bETH.
 

There, you need to hit “provide” (bottom left) to, you guessed it, provide your bETH as collateral, before being able to borrow. Currently, you EARN for borrowing! Yes, you read it clearly, you earn 10.77% to borrow against your bETH, with ANC as incentives (Look at the Net APR figure). This figure is fluid, and can range from 10-30%.

Then you can hit “borrow” (top left). You can borrow up until 60% of your collateral. Careful, it’s easy to get liquidated with Anchor, so do your research on what is safe to borrow given your balances.

You thus received UST against your bETH.

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Use your UST

You now have UST that are free to use as you want. Here are some possibilities:

  • I personally used it to stake the UST on terra here: Anchor (anchorprotocol.com). You can thus earn 20% APY on these UST. Just hit “deposit“.
terra-anchor-earn-ust-20_-apy_1
By staking UST on Terra, you can earn 20% APY
 
 
  • The UST in anchor can be used as collateral for the Mirror protocol. You can long or even short stocks and other equities and earn yield on it.  For example, you can long gold for 24% APY.
  • A nice resource to go further into degen DeFi, with mirror protocol also, but it’s pretty complicated: High-yield strategies – Google Sheets

The other route recommended by other tutorials and cheap marketers

It’s relying on this blog post from lido: A Guide To Collateralizing bETH in Anchor Protocol | Lido Finance
And by just going with this route, you will pay like $40 of eth fees just for the bridge. Let’s not even talk about buying eth or swapping it etc.

How safe is anchor? What are the risks with Anchor, Luna, bETH?

The Anchor protocol itself has been assessed by my favorite resource in Defi: Defisafety, and an overall score of 75%.

Defisafety final assessment gives a 75% score to Anchor.

defisafety-anchor-safe-score-75_
Defisafety final assessment gives a 75% score to Anchor.

The protocol is also used by quite a lot of people: the total collateral value on anchor is $2.4 billion!

There is quite a number of risks with this route, here are just a few ones:

  • Hacks, of course, internal shenanigans like Cred’s case.
  • UST can lose its peg and not be worth $1. As it is an algorithmic stablecoin, we had a recent example of a formidable algorithmic crash. At least it’s not USDT!
  • The 20% on the UST is not always 20%. Also, apparently if the rate starts to decline too much, the protocol will dip into the treasury.
  • Flash crashes will probably get you liquidated

Conclusion

As you can see it’s not straightforward, as most things in DeFi. The whole scheme has lots of risks. I personally do this route with only 10% of my eth. For people that want to use more of their eth portfolio on this route, I highly recommend using a side DeFI insurance like InsurAce. See this post for more info on DeFi insruances. Also have a look at my different advices on how to stay safe in DeFi.

PS: For the calculation of the rate, I might be totally wrong as DeFi calculation tend to be complicated. Here is what I understand:

  • Max of 30%APR on your bETH. It’s another layer of complexity that you can read about here. I don’t know how low it can go, but 30% is the maximum.
  • 20% APY on the max UST you can borrow against your bETH.
  • Altogether the maximum with this route: 30% APR + 20% APY of 60% = more or less 42% AP

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