One more project was listed in the Innovation Zone by Binance, Liquity (LQTY). Once listed on Binance, users can buy or sell LQTY in either LQTY/BTC and LQTY/USDT trading pairs.
Overview of Liquity
According to its whitepaper, Liquity is a decentralized borrowing protocol that enables users to draw interest-free loans against Ether used as collateral. Loans are paid out in LUSD and need to maintain a minimum collateral ratio of 110%.
Besides collateral, loans are secured by the Stability Pool containing LUSD and by the fellow borrowers acting as guarantors of last resort.
LUSD stablecoin
LUSD is a USD-pegged stablecoin used to pay off loans on the Liquity protocol. It can be redeemed at any time with the underlying collateral at face value. Theoretically, users can convert LUSD to ETH at the corresponding rate at any time without limitation. That is, for x LUSD, you will get back x USD worth of ETH in return. However, a redemption fee might be charged on the redeemed amount. For example, if the current redemption fee is 1%, the price of ETH is $500 and you redeem 100 LUSD, you would get 0.198 ETH (0.2 ETH minus a redemption fee of 0.002 ETH).
It is worth noting that LUSD is not the same as algorithmic stablecoins like UST. Its floor and ceiling prices are not determined by another cryptocurrency. Instead, the fixed rate of LUSD is maintained by the balance between the borrowing fee and the loan.
Stability Pool
Stability Pool is a tool to ensure and maintain the solvency of the system. In other words, it ensures users can convert LUSD to ETH at any time. It achieves that by acting as a source of liquidity to repay debt from liquidated Troves, ensuring that the total supply of LUSD always remains backed.
When any Trove is liquidated, an amount of LUSD corresponding to the remaining debt of the Trove will be burned from the balance of the Stability Pool to repay its debts. In return, all collateral from Trove is transferred to the Stability Pool.
The Stability Pool is funded by users transferring LUSD into it (called Stability Providers). Over time, the Stability Providers will lose a pro-rata share of their LUSD deposits while gaining a pro-rata share of the liquidated collateral. However, since Trove is likely to be liquidated at a collateral ratio of less than 110%, Stability Providers will receive a greater dollar value of collateral than the debt they pay off.
Stability Providers are encouraged to deposit LUSD into the Stability Pool in two ways:
First, liquidation gains. Liquidations of ETH loans (Troves) will generally lead to a net gain for the Stability Pool, consisting of the difference between the absorbed debt (in LUSD) and the received collateral (in ETH). Stability Providers participating pro rata with their pool deposits thus acquire collateral from liquidated positions at a significant discount.
Second, rewards. Stability Providers will continuously receive LQTY tokens based on the deposited LUSD and the kick back rate of the frontend through which their deposits are made.
Frontend Operator
The Frontend Operator provides a web interface to end users, allowing them to interact with the Liquity protocol. Frontend Operators will be rewarded with a portion of LQTY tokens, which their users generate. LQTY rewards are being given to those who deposit into the Stability Pool and then proportionally shared between the users themselves and the Frontend Operator.
Highlights of Liquity
Liquity is a dual token platform. There are several key factors that makes it different from other platforms:
0% interest rate: LUSD is created by Liquity protocol and Liquity charges a small, one-time fee to borrow LUSD instead of highly variable interest rates.
Low collateral ratio: Liquity’s efficient liquidation mechanism allows users to get the most liquidity for their ETH. Popular DeFi lending protocols, such as Aave, Compound, and Maker, often require a minimum collateral ratio of 150% or more. However, Liquity Protocol offers a collateral ratio of only 110% while still secure thanks to the protocol’s instant liquidation mechanism. This creates an efficient lending system that can provide up to 11x leverage for trading and investing.
Censorship resistant: The protocol is controlled by nobody so Liquity is decentralized and censorship resistant. Furthermore, since there are no governance proposals to vote on, Liquity’s monetary policy is more robust than many other decentralized lending protocols that adopt the DAO model.
Liquity Coin (LQTY)
LQTY is a secondary token issued by the Liquity protocol. It captures the fee revenue that is generated by the system and incentivizes early adopters and Frontend Operators. LQTY rewards will only accrue to Stability Providers , i.e. users depositing LUSD in Stability Pool and liquidity provider of LUSD:ETH Uniswap pool.
LQTY has a maximum total supply of 100 million tokens. Users can earn LQTY tokens in the following 3 ways:
- Deposit LUSD into Stability Pool.
- Providing liquidity to the LUSD:ETH Uniswap pool
- Facilitating Stability Pool deposits through your frontend.
LQTY staking
To start staking LQTY, all you need to do is deposit LQTY tokens into the staking contract on Liquity. Once done, you will start earning a pro rata share of the borrowing and redemption fees in LUSD and ETH.
Distribution schedule
- Community: 35.3%
- Team and Advisors: 23.7%
- Investors: 33.9%
- Liquity AG endowment: 6.1%
- Service providers: 1%
LQTY is trading at $3.59 on CoinMarketCap; the circulating supply is 91,377,736 with a market cap of $330,167,060. With the increase in trading volume and market cap, Liquity has shown an impressive growth. User adoption is growing as Liquity addresses some of the vulnerabilities of similar DeFi protocols like MakerDAO and Aave. Liquity allows users to get 0% interest loans against ETH used as collateral. So, LQTY is likely to be highly adopted and becomes the choice of many crypto investors.