Introduction

In this Bounty, I will be investigating how liquidations affect the price of Luna. My analysis will consist of looking at bLuna liquidations, using the terra.msgs and anchor.liquidationstables in particular.

Results

Firstly, let's look at how the price of Luna changes based on how many liquidations happened on a daily basis. In the table above we can see all of that data summarised, we can see the average Luna price, the number of liquidations on each day, together with the total amount of USD liquidated on each day.

This graph shows how the average price of Luna changed over time and how liquidations affected the price. We can see that in May 2021, there was a lot of correlation between the price change and the amount of USD liquidated. Afterwards, there is not as much apparent correlation, because the daily number of liquidations stayed fairly constant at around 0-100 liquidations per day.

Here we can see the percentage of Luna price compared to the amount of USD liquidated. We can see that there is a big range of spikes here. For example, there have been big amounts of USD liquidated but the price difference of Luna was only about -7.5%. On the other side of the graph, we can see similar results, for example over 1M USD was liquidated and the price of Luna changed only by around +3.5%. However, I think that the correlation here is still somehow present, as we can see that the most affected liquidations lead to a price difference of +/- 10%.

This graph shows similar results to the previous one - we can see how the price of Luna was behaving during a big range of liquidations. For example, it is clear that the most amount of USD liquidated occurred when Luna was at around $72, and then when it was around $88.7. We can also see that a lot of liquidations were happening at around the price of $32.8 and $41.9.

The above graph allows us to visualise the difference in Luna price compared to how many liquidations there were on a daily basis. The result that is most meaningful here is shown at around the end of May 2021, where we can see the biggest effect the number of liquidations had on the price of Luna - with the maximum being - 40% compared to the average Luna price, due to around 4500 liquidations that happened on only one day!

This graph presents the liquidations which affected the price of Luna - we can see that any dot that is not directly at the x-axis contributed to a change in Luna price. As in the previous graphs, the biggest effect of liquidations occurred in May 2021, however, we can also see it later in the year, for example in September 2021, December 2021 and in January 2022. It is apparent that the liquidations don't impact the price massively, other than on a few individual days, where the correlation is more visible.

The last graph of this dashboard shows the percentage of Luna price over time together with the average amount of USD per liquidation. We can see a few days where the correlation is very apparent, but we can generally also see that on most days, the price of Luna changed, and the average amount of USD liquidated was not that big. Therefore, I wouldn't say that there is a lot of correlation other than on a few days.

Conclusion

The entire analysis has shown that liquidations do affect the price of Luna. On some days, this correlation is more apparent than on other days, but overall we can see the general effect it had on the price. In order to make this analysis better, I would like to include other aspects that could influence the price of Luna, such as the launch of new protocols, the amount of Luna burnt to mint UST, any speculations in the market about the hype of Terra, change in APYs on current staking strategies... In general, any kind of metrics which would show how Luna behaves when there are changes to the ecosystem. I think doing this would allow us to see more clearly what directly affects the price and to what extent.