Curriculum·G105 Protocol Financial Statements·about 31 min
A protocol's balance sheet on-chain
By the end of this lesson you can
- →Read a protocol's on-chain assets, reserves, and debts as a balance sheet
- →Explain how Anchor's draining yield reserve was a readable financial statement before Terra's collapse
- →Compute whether a payout is funded by revenue or by a depleting reserve
- →Treat a protocol as a business whose books are partly public
Graduate · enrolled learners
This lesson opens with Anchor Protocol and Terra, culminating May 2022.
- What happened
- Anchor was the flagship lending protocol of the Terra ecosystem, and it paid depositors about 19.5 percent a year on the UST stablecoin, a rate it advertised as stable and near risk-free. Where that yield came from was readable on-chain. Anchor earned income from borrowers, but borrower demand was far smaller than the deposits it had to pay, so the gap was covered by a yield reserve, and that reserve was visibly draining. In February 2022 it had to be topped up with a roughly 450 million dollar injection to keep paying. The on-chain balance sheet therefore said plainly that the headline yield was a subsidy against a finite reserve, not a return the protocol was earning. When UST lost its dollar peg in May 2022, the whole Terra system collapsed, erasing on the order of 40 billion dollars of value within days. The statement that the model was unsustainable was on-chain months before the failure, in the numbers.
- The decision point
- A protocol is a business, and much of its balance sheet is on-chain: the assets it holds, the reserves it keeps, the debts owed to and by it, all in public contract state. Reading them as a balance sheet is a skill distinct from tracing or clustering, and it answers a different question, not where did the money go, but is this thing solvent and is its yield real. Anchor is the clean case: its reserve was draining faster than its revenue could refill it, and that single fact, readable in the numbers, said the advertised yield was a subsidy with an expiry. A depositor who read the balance sheet saw a countdown; a depositor who read the marketing saw a stable rate. This course teaches the first reading: treat the protocol as a business, find its assets and liabilities in the contract state, and ask whether the story the numbers tell matches the story the protocol tells.
- Recorded loss
- $40,000,000,000
What you will be able to answer
- →Where did Anchor's yield come from?
- →What does reading a protocol as a balance sheet answer?
- →How do you test whether a yield is real?
- →Marketing says stable yield; balance sheet shows a draining reserve. Which wins?
Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.
It is free. We do not sell the list and there is nothing to buy at the end of it.
Sources and review
- https://www.chainalysis.com/blog/luna-terra-collapse/
- https://rekt.news/luna-rekt/
- https://www.investopedia.com/terra-luna-collapse-6829683
Confidence high·Volatility medium·Reviewed 2026-09-15·Owner unassigned
Contested
Anchor's advertised yield was about 19.5 to 20 percent; the February 2022 reserve top-up was about 450 million dollars; the May 2022 Terra collapse erased on the order of 40 billion dollars or more. Figures vary by source and valuation date.
The claim that the model was unsustainable was argued on-chain before the collapse by multiple analysts; the exact timing of when it became inevitable is debated, but the draining reserve was public well ahead of the failure.