Over $1 billion on Anchor Protocol liquidated in just one week by storm LUNA-UST

By Selena On May 21, 2022

Anchor Protocol (ANC) recorded over $1 billion in liquidations last week, making it the largest liquidation event in crypto history for a lending project.

Over $1 billion on Anchor Protocol was liquidated in just one week by “storm” LUNA-UST

$1.048 billion worth of crypto collateral deposited by borrowers on Anchor was completely liquidated on the platform between May 7 and May 12. Luna (LUNA) accounts for more than $750 million, equivalent to nearly 75% of the liquidation on Anchor. Meanwhile, Avalanche (AVAX) is in next place with $261 million, with the rest evenly distributed among Ether (ETH), Solana (SOL), and Cosmos (ATOM).

Crypto-assets have been liquidated on Anchor Protocol | Source: The Block

Besides, the money “flying without wings” on Anchor played a major role in pulling down the total value of locked (TVL) of the entire Terra ecosystem from the peak of $ 26 billion in March (ranked No. 2 on the market) to $142 million (ranked 31st) at press time. TVL Anchor also divided more than 12 times from about $13 billion to $101 million. Notably, the last time such a large liquidation event occurred was a year ago. That’s when the most popular DeFi lending platforms. Today, Compound and Aave had to liquidate a total of $633 million amid a general market crash at the time triggered by China’s cryptocurrency mining ban.

The largest liquidations in the history of the crypto industry of lending protocols | Source: The Block In the case of Anchor, the LUNA-UST problem was the main cause. To understand how this “snowball” rolled, we need to understand a few points about Anchor’s mechanism of action. Anchor is a lending platform on the Terra ecosystem. Users can borrow from Anchor by staking collateral in many other tokens such as LUNA, ETH, AVAX, SOL, and ATOM. Users borrow on Anchor at 10% interest and can borrow up to 60% of the value of the collateral they deposit on the platform. Anchor offers these loans in the form of UST stablecoins. Liquidation occurs on Anchor when the value of the locked collateral falls to a certain point beyond the threshold required to repay the loan. On the other hand, Anchor offers up to 18% interest on stablecoin UST. Therefore, even though it is a lending protocol with such an attractive interest, users had rushed to send UST to Anchor, pushing the amount of UST deposited in the project ($14 billion) to overwhelm the loan amount of only 3 billion UST. This left Anchor with no revenue to pay interest, and the platform chose to “cut blood” on its own to solve the problem. To avoid the risk of resource depletion leading to collapse, Anchor even went through the proposal to become “Curve on Terra.” However, when everything fell apart very quickly after Bitcoin’s sudden crash to $34,000 on May 8, LUNA lost more than 99% of its value, falling from $73 to $0.83. UST repeatedly de-pegs deeper thresholds than expected. Mortgages based on LUNA accordingly “evaporate.” The same applies to many other assets as the crypto market landscape continues to decline on a broader scale. Read more:

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