In my post for Terra 124 I observed the association between sudden drops in the price of LUNA and liquidations on Anchor.

Now I will look at the top 3 worst liquidation periods of 2021 on Anchor. These are ranked based on the daily volume of liquidations (in USD) within a short period of time.

The three worst liquidation periods of 2021 were in mid-May, early September and early December. These periods all coincided with a fall in the price of LUNA.

The mid-May crash was the worst liquidation period of 2021. From May 17 to May 25, more than 9,000 borrowers were liquidated for a combined amount that approached $60M. This bloodbath was triggered by the 65% price decrease of LUNA during this period.

There was another major liquidation period in early September. This was in fact only a one-day affair. On September 7, there were 296 borrowers whose loans were liquidated for an impressive, combined value of more than $37M.

> When a loan is liquidated, the borrower's collateral is sold to repay the loan.

Crypto investors remember the unexpected declines in prices seen in early December. There are 418 Anchor borrowers who remember this period even more vividly. These borrowers had their loans liquidated for a combined value of more than $51M.

> Because LUNA is used as collateral for loans on Anchor, sudden drops in the price of LUNA negatively affect the 'health factor', or Loan-to-Value of loans. When the Loan-to-Value of a borrow position falls below a certain threshold, the loan is subject to liquidation.

> Borrowers can prevent liquidations by topping up their collateral before the Loan-to-Value ratio falls below the liquidation threshold. However, when the value of the collateralized asset falls very quickly, borrowers may not have time to act quickly enough to prevent a liquidation event.

Increases in liquidation volumes on Anchor are seen every time the price of LUNA falls suddenly. We will see more liquidations whenever the price of LUNA falls drastically.

Lessons learned

The liquidation event that took place in mid-May was of an impressive magnitude. The number of borrowers involved was very high at over 9,000. The other two events in our list involved fewer borrowers. However, the amounts of collateral liquidated were also quite high.

There is a sliver of hope for borrowers. Nexus Protocol protects borrowers from being liquidated on Anchor. Nexus vaults use smart contract logic to automatically maintain a healthy Loan-to-Value ratio. Perhaps we will see a reduction in liquidations on Anchor as more borrowers make use of Nexus.