The recent LUNA-UST crash was one such event in the history of the cryptos which had not been witnessed ever before. Terra’s native token LUNA & stablecoin UST both were dragged to the bottom. However, the projects built on Terra blockchain also suffered a similar brutal slash as Anchor Protocol, Mirror Protocol also lost most of its value.
Yet, it is not just Do-Kwon who was responsible for the massive drop, Anchor Protocol also had a major role to play. Not only in the fall of the asset but also the protocol fueled the LUNA price rally that peaked above $100 in no time. The asset continued ranging high in times when the star crypto Bitcoin maintained a consolidated trend. It was all due to the interest Anchor Protocol paid on the UST deposits.
How and When the UST de-peg fueled ANC price Crash, Know more below!
LUNA Price Rally: The Artist – Anchor Protocol
To understand the correlation deeper, the working of the Anchor Protocol needs to be understood first. The lending and borrowing protocol built on Terra blockchain enables stablecoins deposits. Anchor Protocol offered a hefty 19.48% annual interest on UST deposits and collected nearly 11% to 12% interest from the borrows.
And as only LUNA and ETH were allowed to keep collateral for borrowing then, people just jumped in to accumulate LUNA. Further, they were believed to have deposited LUNA as collateral to borrow UST. And in turn deposit UST to get the huge 19.48% interest. And hence this fueled the LUNA price which rose from below $10 to as high as $116 in a very short time.
Additional Read: Crypto Market Crash Update
Anchor Protocol’s and the LUNA-UST Crisis
All was going well until Terra Foundation began accumulating Bitcoin to back their stablecoin UST. Very soon it became the second-largest holder with more than 80,000 BTC in its reserves. This was not accepted by either the Bitcoin maximalist or the Ethereum veterans who criticized the idea very often. During the times when the deposits on Anchor Protocol reached their peak, a huge $248 million UST was liquidated on Curve and Binance.
This led to a huge panic in the crypto space and as UST began to de-peg, huge UST withdrawals were witnessed on Anchor. To avoid the volatile condition of the stablecoin, traders just exited the lending platform in huge masses which led to the ANC price slash. Further, when the Luna Foundation Guard liquidated all of its BTC reserves, the market collapsed which impacted the ANC price as well.
“The ANC price crashed due to the loss of confidence in UST and Terra ecosystem as a whole, as a result of the UST de-pegging,” quoted an analyst at The Block Research
Additiona Read: Terra LUNA Crash Explained
Anchor Protocol ANC Price Movement This Week
- The ANC price was poised to undertake a parabolic recovery and hence ignited a strong upswing since the beginning of May’s trade.
- However, the market collapse triggered by the UST de-peg, slashed the price by more than 95% much similar to LUNA and UST prices.
- Last weekend witnessed some strength in the rally which uplifted the price. Woefully, all the gains were squeezed out and the price was reduced to its initial levels.
- Currently, the price has again dropped below $0.1 while the volume remains extremely low. Therefore, a descending consolidation could continue throughout the weekend
Anchor Protocol’s Deposit Inflation
As mentioned above, Anchor Protocol’s 19.48% interest was the main reason for the LUNA price rally which in turn fuelled the ANC price rally. The deposits on the ‘high-yield savings protocol’ had risen extremely high and reached their peak just before the crash. Interestingly, the borrowing remained less volatile during the same time.
As seen in the above stands, the current UST deposits stand at 1,023 million which was 14,090.77 million on May 6, just before the UST de-peg. On the other hand, the borrowing remained more or less consistent ranging from 2000 million to 3000 million. Therefore, it is pretty clear that Anchor Protocol’s income from the interest was pretty less compared to the interest the protocol owed to the depositors.
Therefore, the growing disparity between Anchor’s deposits and borrowings had placed severe pressure on the reserves. When the income slashes then Anchor had to utilize the TerraUSD (UST) reserves to make up the difference. Terraform Labs frequently injected UST to fill up their reserves. But due to the de-peg, these reserves were severely impacted as more than 13,000 million UST were withdrawn in just a couple of days.
Bitcoin Transfers Spike Post Anchor Protocol Crash
Bitcoin price did get exposed to the first price slash of 2022 triggered by the de-peg event. But at the same time, the volume also intensified and woefully it was dominated by the selling pressure. It was the day when LFG emptied its BTC reserve that accelerated the trading volume. The volume recorded the highest after the infamous market crash of May 2021.
Can Anchor Protocol (ANC) Price Ever Recover and Come Back on Track?
Currently, Anchor Protocol’s price has dropped below the levels it entered into the markets. The prices have sharply fallen by almost 100% from their highs close to $7 in the first few days of inception. Moreover, the volume also has depleted considerably denoting the shift of focus of the traders from ANC. Therefore, it is extremely difficult for the asset to make a comeback anytime in 2022 or at least for the next couple of months.
Additional Read: CoinDCX Delists LUNA, UST, and ANC Tokens