Placing a borrow request to withdraw the required loan in LUSD from Liquity.org. Get the 5-minute newsletter keeping 75K+ crypto innovators in the loop. As bLUSD is redeemable one-to-one for LUSD, a simple strategy would be to sell the bLUSD for LUSD and then bond again, thus compounding the boosted yield. Liquity will permanently own the LUSD, which it will use in the exchange, Curve Finance, to deepen liquidity for LUSD, thus strengthening its dollar peg. Like Liquity, Chicken Bonds use a decentralized frontend operator model instead of hosting the frontend themself. “With Chicken Bonds the benefit is that you get an amplified yield, compared with what you would get with the Stability Pool yield,” Sam Lekhak, head of growth at Liquity, told The Defiant.
Liquity launched in April 2021, and it took just 2 days to integrate Chainlink Price Feeds, which has maintained 100% uptime and saved the Liquity team 100+ hours in development time compared to building a proprietary oracle solution. Liquity has since rapidly scaled to serve thousands of users, acquiring $2.7B in TVL within 8 months with a peak of $4.6 billion. Liquity is a decentralized borrowing protocol designed to generate unprecedented liquidity against Ether as collateral. We have developed a novel mechanism which allows users to generate interest free liquidity against their Ether in the form of LUSD, a USD-pegged stablecoin.
In fact, the minting process of LUSD requires the user to put ETH as collateral in a Trove. It can be related to the process of utilizing a Vault for the generation of DAI. With a collateralization ratio of only 110% and an interest rate of 0%, Liquity.org is one of the most advanced DeFi lending protocol platforms today. The Liquity.org protocol is free from governance, and the lending service of the platform is 100% censorship-resistant. Most of the popular DeFi lending protocols in the money markets are only decentralized in the name.
Keeping a stake of LQTY to earn revenue in the form of ETH and LUSD from the redemption and borrowing fees. In addition to the collateral, the loans are secured by a Stability Pool containing LUSD and by fellow borrowers collectively acting as guarantors of last resort. Since the depositor pays his fees at the time of borrowing on Liquity, the evolution of the rate afterwards has no consequence for him. This booklet provides examiners with guidance on assessing the quantity of a bank’s liquidity risk and quality of liquidity risk management. The Final Policy Statement summarizes the principles of sound liquidity risk management. Overcollateralized borrowers deposit funds into Liquity and receive LUSD.
Key Features of Liquity.org
Liquity.org is the best platform for collateralized debt positions among other DeFi lending platforms like Maker, Compound, and Aave, which provide over-collateralized loans at a surcharged interest rate of 150% or more. To get started with Liquity.org, the user needs to register on the platform and then link the online crypto wallet to the account to start borrowing loans. Liquity.org does not provide a front-end web interface, and therefore, the user must download and install an interface to access the lending protocol of the platform. Liquity’s borrowing protocol required a reliable and real-time ETH/USD price feed to securely open troves, trigger liquidations, and calculate LUSD redemptions while maintaining a 110% collateral requirement.
Liquity is a decentralized borrowing protocol that allows users to draw 0% interest loans against Ethereum used as collateral. Loans are paid out in LUSD, a USD-pegged stablecoin, and need to maintain a minimum collateral ratio of 110%. The customer support helpdesk is not promptly responsive and only available over email. The collateralization ratio is only 110%, which is quite low in comparison to other platforms. The platform is governance-free, and so there is no risk of manipulation. Liquity is a novel borrowing protocol that puts great emphasis on decentralization and immutability.
The baseline yield for LUSD through Liquity’s Stability Pool, which makes money by buying collateralized ETH which has been liquidated. The boosted yield comes from reorganization and auto-compounding, rather than token inflation, suggesting a more sustainable model. Many existing oracle solutions are subject to centralized points of failure, while building its own infrastructure would require manpower, resources, and expertise the team didn’t have. Liquity integrated the Chainlink ETH/USD Price Feed, helping the protocol maintain core competitive advantages and secure functionality as it scaled in TVL, peaking at $4.6B Total Value Locked within 8 months. The most resilient stablecoin design requires overcollateralization with the most trustless asset on a given blockchain – its native currency. There was even classic liquidity mining on the LUSD/OHM pair, but revisited.
LQTY = $0.589706
It is about the possible interactions with the protocol whose consequences depend on the actions of the other players. Various extreme situations in the market can also lead to the possibility of an LUSD that deviates more or less permanently from the peg. On the whole, the stabilization mechanisms are there to bring back the balance in the long term.
According to a Liquity.org review, the platform of Liquity.org is regulated by Article 13 of the Swiss Federal Constitution. The operation of Liquity.org is also subject to the regulations and rules of the Swiss Confederation. The platform also has the most robust security technologies in place to protect the databases against unauthorized third parties and hackers. The native token of the platform, LUSD, is directly redeemable at face value against the collateral assets.
The Stability Pool thus offers a rather gas-light and attractive native return option on the LUSD. With a conservative collateralization ratio, it may even be suitable for an almost entirely passive position. The purpose of this article is therefore to introduce Liquity while expliciting several critical dimensions for any loan/money market service in DeFi. If that’s not enough to excite your curiosity, the good news is that to achieve such a result, Liquity implements several new ideas that are really relevant.
The lending of stablecoins becomes capital efficient as they do not have to incentivize lenders with higher returns, as in the case of Aave. Moreover, borrowers benefit from lower fees as they are accessing the tokens directly from the protocol. LQTY is the second token of Liquity.org that is offered as a reward to the stability providers. This token serves as an incentive for the early adopters and the operators of the front-end interface. The users can also earn LQTY by making deposits of LUSD at the Stability Pool.
Liquity and LUSD in the DeFi ecosystem
Integrating the third-party front-end interface with Liquity.org to access the platform. Lekhak noted that the NFTs, without which a user cannot receive their bLUSD, can sometimes end up much more valuable than even the boosted yield they represent. The visualization of the NFTs will also differ based on other factors, like whether a user’s wallet has borrowed against their ETH with Liquity. Yet on Oct. 4 there was an exception — Chicken Bonds, launched by Liquity, a collateralized debt position protocol with a market cap of $176M. Liquity charges a small, one-time fee to borrow LUSD instead of highly variable interest rates. Other integrations are still possible, like for example the direct integration of the stability pool on a pool fuse to allow a more optimal use of the stability pool’s assets.
Moreover, the services of this crypto loan platform are compatible with Blockchains that are enabled to operate smart contracts. At present, the total value locked on the platform has surged to more than $3 billion, thereby indicating the growing popularity of the platform. Apart from this, click here to know more about Bitcoin loan and how it works. Therefore, the borrowing system of Liquity.org is highly capital efficient, according to the Liquity.org reviews, the platform can offer a leverage of up to 11x for trade and investment with its collateral ratio.
- For example, after accumulating a lot of liquidity on DAI and FRAX, Olympus turned to LUSD with the accumulation of LUSD and LP Sushi LUSD/OHM via the bond mechanism.
- The NCUA’s economists and analysts compile data on the credit union system’s financial performance, merger activity, changes in credit union chartering and fields of membership, as well as broader economic trends affecting credit unions.
- With a conservative collateralization ratio, it may even be suitable for an almost entirely passive position.
- Loans are paid out in LUSD – a USD pegged stablecoin, and need to maintain a minimum collateral ratio of only 110%.
- Users only need to pay a small, one-time fee of 0.5% during the loan acquisition period, with no terms or set duration on the loan.
The https://cryptolisting.org/ team built a non-custodial, immutable, and governance-free DeFi protocol enabling users to take out 0% interest loans using Ethereum as collateral. I am specifically excited about the potential synergies with CeFi and DeFi protocols. In my opinion, Liquity has the potential to become the ultimate borrowing protocol for DeFi and has already started to revolutionize the field. It is a great addition to the quickly expanding collection of money legos in DeFi.
Accessed through an immutable proxy interface, Chainlink Price Feeds enabled Liquity to preserve its governance-free model while offering highly accurate and secure price data directly to Liquity’s smart contracts. Though it was possible to build their own oracle solution, the Liquity team was interested in a seamless plug-and-play solution from day one. A propriety oracle solution would take 100+ hours to build, expending valuable engineering resources both in the initial development and much more in constant maintenance.
The 0% interest rate for borrowers, as well as the one-time fees offered by Liquity open new horizons for investors who want to use leverage. Not relying on liquidity pools allows the borrowing protocols to be more competitive. And have provided access to the dApp via multiple interfaces hosted on different frontend operators. Moreover, any operations such as minting of stablecoins are fully automated and algorithmic. All the protocol parameters are set at the time of contract deployment, which ensures that the protocol is governance-free and immutable.
As a prominent player in the decentralized borrowing ecosystem, What is Liquity allows users to unlock liquidity against their ETH without giving up their exposure to ETH. Liquity’s core competitive advantages over other decentralized borrowing protocols come from 0%-interest-rate loans and a low collateralization requirement of 110%. Users only need to pay a small, one-time fee of 0.5% during the loan acquisition period, with no terms or set duration on the loan. While all small contracts have a certain level of immutability, the governance models underlying these blockchain protocols often allow for continuous upgrades. Given its governance-free model and low collateralization ratio requirements, choosing the correct price data source for Liquity’s smart contract from the start was of the utmost importance. All aspects of Liquity’s decentralized borrowing model depend on secure price data that always reflect fair-market prices.
The funds in the Stability Pool are used when necessary for liquidations. As the system is now quite mature, liquidations tend to happen mostly in case of a sharp drop in the ETH price. A position in the Stability Pool therefore allows one to profit from these juicy liquidations without having the skills or infrastructure to execute them. This booklet applies to the OCC’s supervision of national banks and federal savings associations. For statutes, regulations, and guidance referenced in this booklet, consult those sources to determine applicability to federal savings associations.
The recovery mode is not a surprise, however, since it depends on a parameter that everyone can easily follow. Such a system makes it possible to maximize the efficiency of the protocol most of the time, while quickly reverting to more conservative settings if necessary. This is why Liquity is ideal for long term positions, such borrowing costs are effectively 5-10x lower than what you can find on the main alternatives. Covers applicable definitions and provides an overview of unsafe and unsound banking practices. The Class “Ethereum ERC-20 Standard Token” captures every token that is implemented by means of the ERC-20 Standard on top of the Ethereum blockchain.
LUSD also uses a soft peg mechanism for ensuring parity with the US Dollar. However, the users have to meet the payment of the borrowing fee, which is of a nominal amount. The borrowing fee rate depends on the current base rate that is determined by an algorithm based on the redemption volume. As such, there is no incurrence of the capital cost that gets transferred to the users. Nor is there any need to meet overhead charges for the regulation of money supply in the form of interest rates. Paying the borrowing fee and keeping ETH as collateral to obtain funds from the platform.
Rather, they needed ready-made infrastructure to plug into so they could focus on building their protocol. More specifically, they needed one that could stand the test of time, allowing them to continue offering users a competitive decentralized borrowing experience backed by secure, decentralized, and reliable price data year over year. To ensure solvency and secure the protocol while maintaining an edge over its competitors, Liquity required access to a tamper-proof, real-time ETH/USD price oracle. Price oracles are mission-critical for all of Liquity’s core functions, from triggering liquidations and opening troves to closing loan positions through LUSD redemptions. Blockchain-based borrowing platforms are a foundational building block for the emerging decentralized economy. As a financial primitive, lending gives users an option to earn additional yield on various assets, while borrowing unlocks liquidity for users who want to maintain exposure to the underlying collateral asset.