LQTY Liquity

Main Use Cases of Liquity

• Borrowing LUSD: Users can deposit their ETH as collateral and borrow LUSD, a USD-pegged stablecoin, for use elsewhere. This includes depositing the newly minted LUSD into the Stability Pool, providing liquidity on Uniswap, or buying more ETH to leverage up their position.

• Stability Providers: Users can deposit LUSD into the Stability Pool to earn rewards. They receive ETH rewards from liquidated Troves and additional LQTY rewards from the protocol. This process allows for a net gain over time as the ETH gained is typically higher in dollar terms than the LUSD lost.

• Staking LQTY: Users can stake their LQTY rewards in Liquity’s staking contract to receive more rewards. These rewards come from issuance fees and redemption fees, paid in LUSD and ETH respectively.

• Liquity V2 Use Cases: In addition to the above, Liquity V2 introduces new use cases such as:

  • Borrowing BOLD: Users can deposit ETH or LSTs as collateral and mint the stablecoin BOLD.
  • 1-Click Leverage: Users can borrow BOLD against their deposited collateral and use it to buy more collateral, increasing their exposure to the underlying asset.
  • Earning Yield: Users can deposit BOLD into the Stability Pool or provide liquidity on external DEXes to earn rewards.
  • Staking LQTY: Users can stake LQTY to direct protocol incentives and earn rewards from both Liquity V1 and V2.

Liquity Overview

Liquity is a decentralized stablecoin protocol that offers several advantages and disadvantages compared to other stablecoin projects.

Pros of Liquity

• Decentralization: Liquity is fully decentralized, making it immune to single points of failure and regulatory risks, which enhances its security and censorship resistance.
• Mechanism Design: Liquity features advanced mechanisms such as the stability pool, debt redistribution, and recovery mode, which ensure fast and secure liquidation processes and maintain price stability without a centralized guarantor.
• Market Resilience: Liquity has successfully weathered multiple violent fluctuations in the crypto market, proving the resilience and effectiveness of its core mechanisms.
• Capital Efficiency: The stability pool and other mechanisms optimize capital efficiency, allowing LUSD to maintain price stability even without a centralized guarantor.

Cons of Liquity

• Lack of Governance: The absence of a governance mechanism limits Liquity's flexibility and adaptability to new changes, making it difficult to adjust protocol parameters or introduce new features in response to market needs.
• Fee Structure: Liquity's one-time fee model at mint and redemption can lead to unstable protocol income, as it cannot continuously profit from increased stablecoin circulation.
• Future Incentives: The main incentive for LQTY tokens is used for the stability pool, but as time goes by, the number of LQTYs reserved for stability pool incentives will decrease, potentially affecting Liquity's ability to attract and retain users.
• Competitive Disadvantages: Compared to other stablecoin projects like MakerDAO and Frax Finance, Liquity's lack of governance may hinder its ability to adapt to external changes and innovate products, limiting its long-term competitiveness and market share growth.

Founders of Liquity

• Robert Lauko: Founder and CEO of Liquity. He holds a Ph.D. in Law from the University of Zurich and previously worked as a researcher at DFINITY.
• Rick Pardoe: Co-founder and Lead Developer of Liquity. He has a background in Physics and Economics and has developed software for the web and blockchain, including a Solidity decimal math library.

Investors in Liquity

Liquity has received investments from several prominent venture capital firms and investors. These include:

• Polychain Capital: Known for their extensive investments in the crypto space, they have seen a significant return of +314% on their investments.
• Pantera Capital: With a diverse portfolio and a return of +106% on their investments, they are a key player in the crypto investment landscape.
• A.Capital Ventures: Although with fewer investments, they have seen a substantial return of +801%.
• Alameda Research: With a return of +714% on their investments, they are another significant investor in Liquity.

Halal Status of Liquity

• Halal Status: Yes
• Reason: Liquity operates on a 0% interest rate model, which aligns with Islamic finance principles that prohibit interest lending. Instead, it uses a one-time issuance fee and liquidation fees, making it compliant with Shariah guidelines.