Liquidation Risks

    Liquidation and its risks.

    Introduction to Anchor Liquidations

    Liquidations are events on the Anchor platform that forces users to repay loans once the loan to collateral ratio exceeds a particular threshold. This happens because collaterals provided are volatile assets as opposed to the stablecoin borrowed which keeps a constant price.

    Liquidation Metrics

    This section will feature liquidation metrics about how frequent liquidations have occurred, how much, and how many users were impacted. The first chart displayed below shows the frequency of liquidations that have happened grouped by day.

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    The most liquidations occurred on May 23, 2021 with 4,508 incidents. Next, let us look at how much these liquidation events cost users. We can see that the most liquidated total amount in a single day is 37.32M UST which happened on September 7, 2021. Although relatively fewer liquidation events occurred on September 7, 2021, the sum is much larger, which means that these liquidation events were suffered by whales.

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    Next, we will look into the number of users that were impacted, and we will also look at conditions that trigger mass liquidations. The graph below shows the number of unique wallets liquidated by day, against LUNA price.

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    We can see that, from the periods with the most liquidations, there was a very sharp fall in the price of LUNA. This is true for April 18, and May 19 - May 23 when LUNA prices fell sharply. Therefore, significant liquidations might occur again when LUNA price falls very sharp.