Anchor Saw $1B in Liquidations During UST and LUNA’s Collapse

Terra’s popular lending platform, Anchor, saw more than $1 billion in liquidations last week as the Terra project collapsed, seeing their stablecoin, TerraUSD (UST), and their other cryptocurrency LUNA drop 94% and 99.99% respectively. That $1 billion in liquidations marked the largest liquidation event in decentralized finance (DeFi) history. 

According to data reported by The Block, $1.048 billion worth of staked crypto collateral deposited by borrowers on Anchor was liquidated between May 7 and May 12. LUNA accounted for over $750 million, with the remaining liquidations coming from avalanche (AVAX), Ethereum (ETH), Solana (SOL) and Cosmos (ATOM). 

An event on this scale hasn’t happened since last year, when Compound and Aave saw $633 million in liquidations during a general market crash. 

In short, what led to the liquidation event was the collapse of UST. Anchor is a lending platform on the Terra ecosystem. Users can borrow from Anchor by putting up collateral in the form of crypto such as LUNA, ETH, AVAX, SOL or ATOM. 

Borrowers on Anchor pay an interest rate of 10% in return for being able to take out loans worth up to 60% of the collateral they deposit on the platform. Anchor provides these loans worth up to 60% of the collateral in the form of UST. Liquidations occur when the value of the staked collateral falls below the loan amount. In other words, Anchor wants to make sure that they are still able to “get their money.” 

When LUNA went from $63 to $35 on May 9 losing almost half of its value, borrowers who deposited LUNA as collateral were subjected to liquidation. However, LUNA didn’t stop there. On May 10 LUNA went from $35 to $10 and down again to less than $1 on the following day, according to Bitpush Terminal data. In order for Anchor to cover themselves, they had to liquidate the collateral, especially LUNA. 

In addition, the LUNA crash was paired with a general market decline which saw the other cryptocurrencies used as collateral on Anchor plummet in value. That forced Anchor to liquidate those other cryptocurrencies as well, but at a far less rate, as they didn’t drop in value as much as LUNA. 

The majority of LUNA liquidations occurred on May 9 and 10 when the value dropped substantially both days. 

Currently LUNA sits at $0.000129, while UST is at the $0.0635 mark. Founder and CEO of Terraform Labs, Do Kwon, is trying to recover the project by launching a fork on the blockchain in order to launch a new blockchain. 

Author: Tyler Irvin

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