Anchor Protocol is a savings protocol that offers incredible yields on Terra Stablecoin (UST) deposits. Currently the APY (Annual Percentage Yield) sits at around 20%. But is the Anchor Protocol insured in any way? Today we will find out.
At the moment Anchor Protocol is not insured by the protocol itself. However there are currently two options to insure your holdings on the Anchor Protocol. These options include two third party DeFi insurance options:
- Nexus Mutual – Nexus Mutual offers protection against many of the inherent risks of DeFi such as protocol hacks.
- InsurAce – InsurAce is a Singapore-based DeFi insurance protocol. It provides a smart contract to protect against several DeFi attacks. So while you are not automatically insured when using the Anchor Protocol. There are two options to protect against things such as: smart contract hacks, economic attacks or governance attacks. In this article we will cover two methods to insure your funds on Anchor Protocol.
How does insurance in Crypto work?
Before we take a look at the options to insure your funds on Anchor Protocol we first need to get a thorough understanding of how insurance works in Crypto. Crypto insurance will cover risks such as fraud or hacks. You can compare this to FDIC (Federal Depoisit Insurance) for FIAT.
Insurance in crypto does work a bit differently though, especially in the DeFi insurance. In DeFi insurance the community has the power to vote whether or not a claim should be paid out from the insurance protection pool.
Any staker in the insurance protocol can issue a vote, this keeps power to the people the way we like it in DeFi.
Anchor Protocol insurance option 1: Nexus Mutual
The first insurance option that we will take a look at is Nexus Mutual. The flagship product of Nexus Mutual is “Protocol Cover”. This offers protection against the following:
- Code being used in an unintended way.
- Protocol hacks
- Smart contract hacks
- Economic attacks
- Oracle attacks (though not specific to Anchor)
and more, check out the terms.
The yearly cost for Nexus Mutual is currently 2.6% for the Anchor Protocol.
How to buy cover on Nexus Mutual for the Anchor Protocol
With the basics of Nexus Mutual covered, we can now take a look at how we can actually Buy Cover for Anchor Protocol. Due to the popularity of the Anchor Protocol there is currently no capacity available but every once in a while there is the possibility to Buy Cover again for Anchor.
Here are the steps to buy cover on Nexus Mutual:
Go to "Buy Cover" in the main menu and search for Anchor Protocol.
Next in the quote details enter the amount of ETH or DAI (USD) you would like to cover. And the number of days you would like to be insured.
After that you can click on “Become a Member” to insure your funds on Anchor. Please not that there is a fee included and you need to perform a KYC (Know your customer) procedure.
Please note that we have included a screenshot of Trader Joe, as Anchor insurance is unavailable at the time of writing.
Connect your wallet (Metamask for example) and make the purchase.
Your funds are now protected by Nexus Mutual!
Anchor Protocol insurance option 2: InsurAce
The second insurance option we will look at is InsurAce. InsurAce is a decentralized multi-chain insurance protocol. According to the documentation it’s main product the "Smart Contract Cover” provides insurance against:
- Smart contract hacks
- Economic failure
- governance attacks.
Here are the steps you need to take to buy insurance on InsurAce.
From the main page click on “Buy Insurance” Search for Anchor and click on select.
Now click on your cart button on the bottom right.
Enter a cover amount and period. Agree to the terms and click on Confirm. Please note that you can currently use InsurAce on four networks: Ethereum, Binance Smart Chain, Polygon and Avalanche.
Confirm cover amount and period.
Connect your wallet and confirm the transaction.
You are now insured on the InsurAce network.
Bonus: insure Anchor Protocol against de-pegging
So now that we got ourselves protected against protocol hacks, smart contract hacks etc. We still have a risk remaining, and that is the risk of so called de-pegging. De-pegging is when the stablecoin currency, which in this case is UST, loses it’s 1:1 ratio with its peg. UST is pegged to the United States dollar using an algorithm.
While the chances of Terra UST losing its peg are low, you can still cover this using isurance if you like. You can insure this risk using Unslashed
Here are the steps you need to take to cover for a de-pegging risk of UST:
Connect your wallet (Metamask) and visit the Unslashed app
Go to get covered and search for UST Peg. Please note that you can also insure Anchor + UST Peg on Unslashed.
Enter the amount of ETH in equivalent of UST and click on Add Cover.
Now purchase your coverage by clicking on Add Cover.
This concludes the steps required to cover for a de-pegging risk on anchor protocol.
Conclusion and wrap-up
In this article we took a look at the several options available to insure your funds on Anchor Protocol. The main DeFi risks can be covered by Nexus Mutual and InsurAce while the pegging risk can also be covered using Unslashed. These insurance options as of date do cost you a premium which will off course impact your overall yield. In this table you can see the current rates of insurance:
|Risk covered||Insurance fund||Premium paid|
|Smart contract risks||Nexus Mutual||2.60%|
|Smart contract risks||InsurAce||2.5%|
|Dollar Peg Stability||Unslashed||1.93%|
|Dollar Peg Stability||Risk Harbor||0.1%|
So is insuring your funds on Anchor Protocol worth it? That is up to you to decide. You can get full insurance for around 4.5% per year (Nexus+Unslashed). With Anchor’s APY at 20% this seems to be worth it. Please note that there are also network fees included for the Nexus and Unslashed smart contracts.