The bankruptcy of UST/Luna not only made users of said cryptocurrencies lose millions, but it took the entire cryptocurrency market to the downside, with Bitcoin trading at $25,000.

In addition, other cryptocurrency companies linked to the UST/LUNA ecosystem were also hit hard. This was the case with the Earth-based loan protocol (LUNA), Anchor.

The protocol saw more than $1 billion in settlements last week, the largest settlement event for a single protocol in the history of decentralized finance (DeFi).

According to The Block’s Data Dashboard, $1.048 billion in cryptocurrency collateral deposited by borrowers at Anchor was settled on the platform between May 7-12.

LUNA alone accounted for more than $750 million. That is, about 75% of the settlements on Anchor during the period.

Meanwhile, Avalanche (AVAX) liquidations reached $261 million, with the rest spread across Ethereum (ETH), Solana (SOL) and Cosmos (ATOM).

The last time a major liquidation event like this happened was a year ago, when creditors at Compound and Aave saw a total of $633 million in liquidations amid a general market slump at the time.

What caused this?

In the case of Anchor, the UST crash was the main catalyst. To understand how this happened, we need to know how Anchor worked.

Anchor is a lending platform in the Earth ecosystem. Users can borrow from Anchor by placing collateral in the form of cryptocurrencies which can be LUNA, ETH, AVAX, SOL or ATOM.

The loan on Anchor has an interest rate of 10% and borrowers can borrow up to 60% of the collateral they deposit on the platform. Anchor provided these loans in the form of UST stablecoin.

Settlements occur at Anchor when the value of the collateral drops to a certain point that exceeds the threshold required to repay the loan.

Therefore, as Luna lost almost 99% of its value during this liquidation period, dropping from $73 to $0.83, the other assets pledged as collateral also fell in value and had to be liquidated.

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