Lending and borrowing services were the most popular solutions in the cryptocurrency market, and the DeFi industry specifically, as they are the perfect tools for receiving short-term exposure to a certain asset or moving funds with no need to cash out via exchanges.
Terra lending platform Anchor officially launched floating interest rates yesterday, and the interest rate this week was 18%, down 1.5% from last week. Reserves now total $209 million, a net outflow of about $30 million from last week. pic.twitter.com/ElNvjeMqoa— Wu Blockchain (@WuBlockchain) May 2, 2022
While cryptocurrency traders and investors (borrowers) get quick exposure to assets they want, lenders are eligible to receive a stable profit from giving out their funds. Profits are determined by the interest, which can be both stable and floating.
The primary advantage of floating interest is the ability of lenders to lock their funds with an above average rate whenever the contract gets drained. The major drawback is decreasing interest with high saturation.
With the newly implemented solution, we already saw the effect of floating interest as it decreased from 19.5% to 18% after the contract's reserves hit $209 million. The drop in the rate caused $30 million in outflows. If a fund's reserves are to be drained, the rate will most likely recover upward to attract more liquidity.
The total value locked on Achor platform, which offers the newly arrived solution, is now at almost $20 billion UST, with the total deposit at $13 billion and the total collateral at $5.6 billion. The APY on UST deposits currently sits at almost 18%.