It’s been a few months since the infamous “May Crash” where we saw 50% drawdowns of the entire market and LUNA’s price crashing more than 70%. During those stressful weeks, the entire Terra ecosystem was put to test and the Terra community was in distress.
Many LUNAtics were affected due to being exposed to leverage on Anchor. A popular strategy that many have used was the recursive lending strategy, this involved:
1. Depositing bLUNA as collateral on Anchor
2. Borrowing UST to buy LUNA
3. Swap LUNA to bLUNA to repeat Step 1
This essentially allowed many to leverage up their LUNA holdings. This was fine as long as LUNA’s price kept going up, but when the “May Crash” came, many were left panicking trying to pay back their loans.
In this article, I will highlight several lessons that I learned from that experience. Hopefully, this will provide new LUNAtics with a better understanding of the risk involved in borrowing on Anchor.
Total LUNA holdings in Anchor
Your strategy for managing risk will depend upon how much of your total LUNA holdings are on Anchor. In general, if a higher percentage of your total LUNA holdings is on Anchor you should be more conservative, if you have a lower percentage of your total LUNA holdings on Anchor you can be riskier.
While this is highly dependent on your individual situation, I personally wouldn’t have 100% of my Read More