LUSD Liquity USD

Liquity USD Overview

Liquity USD is a stablecoin used within the Liquity protocol, a decentralized lending platform. The primary use case of Liquity USD is borrowing.

Key Features

• Borrowing: Users deposit Ethereum (ETH) as collateral and borrow Liquity USD against it. This borrowed Liquity USD can be used elsewhere, such as depositing into the Stability Pool, providing liquidity on Uniswap, or buying more ETH to leverage up their position.
• No Variable Interest Rates: Borrowers pay a one-time fee to borrow Liquity USD, eliminating fluctuating interest rates for the duration of the loan.
• Lower Collateral Requirements: Liquity has a minimum collateralization ratio of 110%, allowing users to access more debt per dollar of ETH compared to other protocols.
• Stability Pool: Users can deposit Liquity USD into the Stability Pool, which is used to liquidate loans at risk and collects Ether as collateral.
• Redemption Mechanism: Any owner of Liquity USD can redeem their stablecoins for the underlying ETH collateral at any time, ensuring a stable value.

How It Works

• Trove Creation: Users lock up ETH as collateral in a smart contract, creating an individual position called a "trove."
• Minting Liquity USD: Users can then mint Liquity USD, a USD-pegged stablecoin, against their collateral.
• Collateralization Ratio: Each trove must be collateralized at a minimum of 110%, ensuring the system remains over-collateralized.
• Redemption: Users can always swap their Liquity USD for the equivalent value in ETH (minus fees), directly with the system.

Benefits

• Capital Efficiency: Liquity provides a capital-efficient way to borrow stablecoins with lower collateral requirements.
• Predictability: The one-time fee structure offers predictable borrowing costs.
• Flexibility: Users can use borrowed Liquity USD in various ways, including leveraging their position or providing liquidity.

Pros of Liquity USD

• Interest-Free Borrowing: Liquity USD allows users to draw 0% interest loans against Ether used as collateral, making it an attractive option for those looking to borrow without incurring interest charges.
• Capital Efficiency: With a collateral ratio of just 110%, Liquity USD is more capital efficient than other similar protocols, allowing users to maximize their borrowing potential.
• Governance-Free: The protocol is fully automated and does not require governance to set parameters, ensuring that operations are algorithmic and censorship-resistant.
• Direct Redemption: Users can redeem their collateral at face value at any time, providing flexibility and control over their assets.
• Decentralization: Liquity USD is a completely decentralized stablecoin protocol, making it immune to single points of failure and regulatory risks.

Cons of Liquity USD

• Lack of Governance Mechanism: While the lack of governance provides security and decentralization advantages, it also limits the protocol's flexibility and adaptability to new changes, potentially hindering use case expansion.
• Fee Structure: The one-time fee model at mint and redemption can lead to unstable protocol income and may not continuously profit from increased stablecoin circulation, causing a mismatch between risk and return.
• Limited 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 the protocol's ability to attract and retain users.
• Competitive Disadvantages: Compared to other stablecoin projects with governance models, Liquity USD may be at a disadvantage in terms of governance and product innovation capabilities.
• Volatility: LUSD is more volatile than other stablecoins, and its price stability mechanism, while effective, may not always maintain a perfect peg to the US dollar.

Founders of Liquity USD

Liquity USD was founded by Robert Lauko and Rick Pardoe.

• Robert Lauko: He is the founder and CEO of Liquity. Robert holds a Ph.D. in Law from the University of Zurich and has extensive experience in legal roles, including serving as a law clerk at the Swiss Federal Administrative Court. Before founding Liquity, he worked at the DFINITY Foundation, focusing on consensus algorithms and incentive mechanism design.

• Rick Pardoe: Rick is the co-founder and Lead Developer of Liquity. He has an academic background in Physics and Economics and has developed software for the web and blockchain. Prior to Liquity, he worked on a Solidity decimal math library, optimizing functions for gas cost and accuracy. At Liquity, Rick focuses on building the backend smart contracts with thorough testing and security.

Source: Liquity Press Kit

Investors in Liquity USD

Liquity USD has received significant backing from various investors. The key investors include:

• Pantera Capital: Led the Series A funding round.
• Nima Capital: Participated in the Series A funding round.
• Alameda Research: Contributed to the Series A funding round.
• Greenfield.one: Involved in the Series A funding round.
• IOSG: Participated in the Series A funding round.
• AngelDAO: Supported the Series A funding round.
• Individual Angels: Notable individuals such as Bo Shen, Meltem Demirors, David Hoffmann, Calvin Liu, and George Lambeth also invested.
• Additional Supporters: Tomahawk.VC, 1kx, and Lemniscap provided continued support during the funding round.

Halal Status of Liquity USD

• Halal Status: Yes
• Reason: Liquity USD is considered halal because it avoids traditional interest-based (riba) mechanisms by charging one-time borrowing fees instead of ongoing interest payments. This aligns with Shariah principles, making it a viable option for Muslim users seeking halal financial instruments in the DeFi space.