What Is Liquity USD (LUSD)?
Liquity (LUSD) is a decentralized lending protocol that allows users to withdraw funds with zero percent interest loans when they leverage ETH as collateral. Loans are paid in LUSD, a dollar-pegged stablecoin. A pegged token is an asset issued on a blockchain pegged to a currency issued by a government or bank. The Liquity protocol is non-custodial, immutable, and governance-free.
According to the whitepaper, the user first needs to choose a web interface (also known as the front end) to access the system. The core team building the protocol cannot operate on the front end. Instead, Liquity is accessed by third-party front-end applications and integration services.
Liquity aims to provide several borrowing conditions in the market, and the main benefits are:
0% interest rate
The collateral ratio of 110%
No governance - all operations are algorithmic and completely automated
Directly redeemable - LUSD can be redeemed for the underlying collateral at face value and at any time
Censorship resistance - protocol is not controlled by anyone
Liquity’s token, LUSD, is a completely redeemable stablecoin. The system allows holders to exchange their LUSD tokens for underlying ETH collateral based on the face value of the redeemed tokens. This enables direct arbitrage when LUSD trades below $1 by creating a price floor for LUSD. Therefore, redemption is subject to a redemption fee, a function of the base exchange rate and the LUSD redemption amount. The minimum redemption fee is 0.5%. Fees are deducted from redeemed LUSD, reducing the ETH that redeemers receive in return.
Liquity provides liquidity without charging borrowers interest or recurring fees. ETH holders can use their collateral for liquidity. However, as an algorithmically controlled instrument, the protocol charges a borrowing fee (one-time fee) on newly withdrawn liquidity to support the peg to the U.S. dollar. Users can use their stablecoin LUSD to participate in the wider DeFi market, consisting of many different products designed to generate revenue.
Additionally, Liquity has incentivized new avenues for decentralization and growth by tokenizing and redistributing a significant portion of its protocol revenue to users and front-end operators. The platform aims to educate users on usage and provide background information on liquidity protocols.
History of Liquity USD (LUSD)
The whitepaper of Liquity USD (LUSD) was released on April 5, 2021. The total supply of Liquity USD is 719,446,095 LUSD.
