Anchor and Magic Internet Money — Emerging Stablecoin Protocols Show The Future is Stable

Novum Insights
4 min readApr 28, 2022

Last week, we took a look at Terra — a DPoS blockchain for creating algorithmically pegged stablecoins. Its native UST stablecoin is now one of the most used by market cap (now $18.4B) and the value of its LUNA token is continuing to steadily grow. The token has seen 465% growth since this time last year.

Perhaps driven by the extreme volatility of crypto, the stablecoin space of DeFi is one its most rapidly evolving sectors, with protocols appearing that push the boundaries of stablecoin utility and collateralisation. Two such protocols are Terra’s own Anchor Protocol and Abracadabra’s cross-chain protocol Magic Internet Money (MIM), both of which offer unique means of earning yield with stablecoins. Let’s take a look at how these platforms work and what they offer.

What is Anchor?

Anchor Protocol is a popular savings protocol hosted by the Terra blockchain and launched in March 2021. The platform was developed by the creators of Terra, Terraform Labs. Its lending/borrowing platform offers ~20% yields for lending stablecoins, the loans of which are over collateralised by stakeable assets such as bLUNA and bETH (the ‘b’ represent the fact that they are considered bonded assets).

The 12% staking returns of Terra’s native LUNA token helps ensure high and predictable yields that benefit both the lender and borrower. The protocol’s stablecoin lending yield opportunities have contributed to demand for Terra’s native UST stablecoin, with Anchor now standing at 10B UST locked. However risks exist in the potential for a loan’s collaterilisation to devalue below that of the loan which causes loan liquidation — a process by which the collaterilisation is sold to repay the loan. As a result, the platform recommends a loan usage percentage (the proportion of a loan actually being utilised by the borrower) of 75% or less.

Beyond governance of the platform, its native token ANC offers further utility in its ability to scale with the value of the platform’s AUM (assets under management). In effect, this means that stakers of the token earn proportionate rewards to their stake. They are also distributed organically to users who participate in borrowing. Anchor has disclosed that 40% of total ANC supply will be reserved for borrower incentives. Users can also earn fees by providing liquidity for the ANC token.

What is Magic Internet Money (MIM)?

Magic Internet Money is a cross-chain protocol by that offers innovative yield earning opportunities for collaterlisation of the platform’s USD-pegged stablecoin MIM. The platform supports Ethereum, Fantom, Avalanche and Binance Smart Chain as well as other layer 1 chains. In typical yield farming through stablecoin collaterlisation, users deposit liquid assets such as Ethereum in order to receive proportionate stablecoin plus interest. This is the case for many popular stablecoin protocols such as MakerDAO’s DAI.

Where’s the Magic?

Where Magic Internet Money is unique however is in its ability to have its stablecoin collateralised by illiquid assets in the form of ‘ibTKNS’ (interest-bearing tokens). These can be thought of as a kind of receipt given to DeFi users who stake assets on standard yield farming protocols such as Yearn Finance, which can be redeposited at a later date to claim their deposit plus interest. Examples of this kind of token include yvUSDC, yvWETH and xSUSHI.

In this way, MIM has created a new ‘layer’ of leverage where DeFi users can now earn interest on their ‘staking receipts’ in the form of a stablecoin plus interest, whilst also having the advantage of turning their deposited illiquid assets into liquid assets. To further positions, users can also use the MIM tokens received from participation in the platform to stake on other platforms.

The platform’s SPELL token is used for governance of the platform as well as incentive for liquidity provision. Of the ~210B SPELL tokens, 63% has been allocated to community incentives with rewards halved every year. There is however a risk of liquidation if the value of the deposited collateral falls below the liquidation price — for which the platform also charges a 4% fee.

Stablecoin Supply Over Time

Info from The Block (Updated 26/04/22)

As one of the fastest growing use cases of DeFi, stablecoins and the ways they can be minted and utilised are constantly evolving. New forms of yield earning and collaterlisation like those offered by protocols such as Anchor and MIM are helping maintain growth in the space’s adoption.

Written by Rob Henderson for Novum Insights

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