Try Quests to earn cryptoTerra Bounties: LUNA & Drawdowns
Evaluate the price performance of LUNA following liquidation-inducing drawdowns. What is the average time (days) for LUNA to recover its previous price level. How does this period change relative to the size of the drawdown (in percentage terms)?
Terra is a public blockchain protocol deploying a suite of algorithmic decentralized stablecoins which underpin a thriving ecosystem that brings DeFi to the masses. Terra is a trustless, programmable blockchain ecommerce platform that offers fiat-pegged stablecoins to provide more stability when conducting cross-border payments. Terra relies on its utility and staking coin, LUNA, as well as several other stablecoins that are pegged to many of the world’s top fiat currencies — including TerraUSD (UST). By using stablecoins, the Terra crypto ecosystem offers low fees, instant settlement, and frictionless cross-border exchange to power retail transactions.
In this report the price of LUNA will be analysed in order to establish the average days that takes for the LUNA price to recover of a drawdowns. In addition, a relation between lenghtof the drawdown and the magnitude of it will also be noted. It has to be said that this analysis will only consider data 2021 onwards.
In the following chart the price of LUNA and its volatility are shown. As analysing the chart, we can see that the first imporant liquidation-inducing drawdowns happened on March-May. Morover, at first-sight we can also se an important drawdown January- February
In order to try to establish which periods of time are really liquidation-inducing drawdowns, I labeled bLUNA daily liquidations/volume on Anchor.
As supposed, we can se 2 important peaks, one happening on May and another happening on January. Therefore, as a matter of course, these will be the two periods of analysis for our report. We are going to analyse how long it takes for the price of LUNA to recover and if there is any relationship with the recovery time and the size of the drawdown.
The first drawdown its considered from May 18th to August 4th, taking 78 days to recover LUNA price. Considering the minimum price during this period we have a drawdown of 74%.
The second drawdown its considered from January 16th to 1st March taking 43 days to recover LUNA price. Considering the min price during this period we have a drawdown of 45%.
In summary, we have analysed the behaviour of LUNA's price after drawdowns that induce liquidation, the time it takes for LUNA to recover its previous price level has also been noticed.
Analysing the data obtained, we can say that the higher the drawdown, the more days it will take Luna to recover its previous price. It seems logical.