Liquity

What is Liquity?

Liquity is a decentralized borrowing protocol that allows users to draw interest-free loans against Ether used as collateral. These loans are paid out in LUSD, a USD-pegged stablecoin, and must maintain a minimum collateral ratio of 110%. In addition to collateral, loans are secured by a Stability Pool containing LUSD and fellow borrowers acting as guarantors of last resort. Liquity operates as a non-custodial, immutable, and governance-free protocol.

The protocol addresses the dominance of fiat-collateralized stablecoins by providing a more capital-efficient and user-friendly alternative for borrowing stablecoins. By offering interest-free loans and ensuring governance-free operation, Liquity aims to promote decentralization within the stablecoin ecosystem.

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Recent Video Interview

Main points of the interview:

• Colton from Liquity introduces the decentralized borrowing protocol.
• Discusses prizes: $2,500 for 1st, $1,500 for 2nd/3rd, and $1,500 pool in LQTY tokens.
• Liquity offers zero-interest loans against ETH collateral, paid out in LUSD stablecoin.
• Key features: capital efficiency, decentralized front-end model, and no governance.
• Liquity's growth: 970,000 ETH locked, 780M LUSD supply, and 240M liquidity on Curve.

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Key Benefits of Liquity

• 0% interest rate: Borrowers enjoy interest-free loans, eliminating the burden of accruing debt over time.
• Minimum collateral ratio of 110%: Liquity enables more efficient usage of deposited ETH as collateral.
• Governance free: All operations within the protocol are algorithmic and automated, without reliance on centralized governance.
• Directly redeemable: LUSD can be redeemed at face value for the underlying collateral (ETH) at any time.
• Fully decentralized: Liquity contracts have no admin keys, ensuring censorship resistance and decentralization. Upgradeability and Change

Liquity operates without an admin key, making it impossible for anyone to alter the rules of the system. The smart contract code is entirely immutable, providing users with confidence in the protocol's stability and security.

How to Use Liquity

To utilize Liquity, users must select a web interface (frontend) to access the protocol. Liquity does not operate a frontend directly; instead, it is accessed through third-party applications and integration services.

Main Use Cases:

• Borrowing LUSD against ETH by opening a Trove
• Providing LUSD to the Stability Pool for rewards
• Staking LQTY to earn fee revenue from borrowing and redemption
• Redeeming LUSD for ETH when the LUSD peg falls below $1

Using Liquity Safely

As a non-custodial system, Liquity operates based on smart contract rules without human intervention. Users may experience losses if their collateral falls below the required ratio or if the system encounters unexpected issues.

LUSD and LQTY

LUSD is the USD-pegged stablecoin used for loans on Liquity, while LQTY is a secondary token capturing fee revenue and incentivizing early adopters. The max supply of LQTY is capped at 100,000,000 tokens.

Understanding Collateral, Stability Pools and Troves

Collateral, in the context of Liquity, denotes assets utilized by borrowers to secure their loans. At present, Liquity exclusively supports ETH as collateral. Each user's loan management hub is known as a Trove, which is tethered to an Ethereum address. Troves maintain balances of collateral (in ETH) and debt (in LUSD), providing a mechanism for users to monitor and adjust their borrowing positions.

The Stability Pool, an integral component of Liquity, acts as a reservoir of liquidity utilized to settle debts arising from liquidated Troves. Liquidations are triggered when Troves dip below the prescribed minimum collateral ratio. In such instances, the outstanding debt is absorbed by the Stability Pool, and the collateral is redistributed among Stability Providers, ensuring the system's financial integrity.

LQTY Staking and Recovery Mode

LQTY holders can stake their tokens to earn fee revenue from the protocol. Recovery Mode activates when the Total Collateral Ratio falls below 150%, incentivizing actions to restore system stability. During Recovery Mode, borrowing fees are set to 0% to encourage borrowing.

Team Background and Partners

Liquity's team comprises experienced professionals dedicated to advancing the project's goals. Michael Svoboda, CEO, brings extensive blockchain expertise, while Robert Lauko, Head of Research, contributes his background in law and prior experience at DFINITY. Rick Pardoe, Lead Engineer and Liquity Co-Founder, leads the technical development with his solid foundation in physics and economics.

Bingen Eguzkitza, Head of Development, brings his expertise in mathematics and philosophy, having made significant contributions to Aragon. Dániel Attila Simon, Software Engineer, contributes his decade-long software development experience, and Colin Platt, Head of Product, combines a structured product background with a passion for problem-solving.

Liquity's partners:

• Investors: Tomahawk, Polychain Capital, Pantera, 1kx.
• Security: Chaos Lab, Hats Finance, Dedaub, ChainSecurity.
• Collaborations: Holyheld, BitcoinSuisse, MAMA.

Project Development

Liquity v2 introduces significant enhancements to the borrowing experience within the DeFi space. While Liquity v1 maintained a fixed 0% borrowing rate, the evolving macroeconomic landscape necessitated a more adaptable approach. With v2, users gain the ability to set their own interest rates, a novel feature in DeFi that allows for greater control and flexibility. This user-set interest rate system aims to decouple liquidation risk from redemption risk, providing borrowers with capital-efficient loans and minimal redemption risk.

Additionally, Liquity v2 introduces new collateral types, such as certain LSTs, expanding market accessibility and future-proofing the protocol. Other improvements include less frequent redemptions, protocol-incentivized liquidity, support for short-term loans, the removal of Recovery Mode, and one-click leverage functionality. These enhancements collectively aim to enhance the borrowing experience on Liquity while maintaining its core values of immutability, security, and predictable fees.

Liquity Price Analysis

As of November 24 2024 Liquity has a marketcap of $125M. This is {{percentagefromath}} from its all time high of $146.94. In terms of its tokenomics, there's a total supply of 100M with 97% currently outstanding. Keep in mind Liquity has a fully diluted value of $129M which many investors might interpret as overvalued.

Of course, don’t trust price predictions alone, always check the Coinrotator token screener to follow the trending market.