governance: Liquity (LQTY) - June 2024 Price Update - 7.27% Breakout Crypto News and Analysis

Explore the Core.

Liquity is a decentralized borrowing protocol that enables users to secure interest-free loans using Ether (ETH) as collateral. This innovative platform introduces a stablecoin, LUSD, pegged to the USD, which borrowers receive as the loan amount. What sets Liquity apart from other borrowing protocols is its unique approach to interest and governance.

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Liquity v1, being interest-free with a fixed-cost reward system, has proven to work reliably in low-interest environments and continues to be a viable option for borrowers in such scenarios. Enter Liquity v2 - a look at some reasons why Liquity v2 will usher in a new era for CDPs. Empowering users with user-set interest rates Liquity v2 allows users to set their own interest rates, empowering them to become active interest rate makers. This democratizes the borrowing process, giving users more control and autonomy to tailor their rates based on their risk tolerance. ​ However, in changing environments, there is a need for a protocol that is completely market-driven - a self-healing protocol that can adapt to any market situation without the need for governance.

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Explore the Core.

Liquity is a decentralized borrowing protocol built on Ethereum that utilizes LQTY, a USD-pegged stablecoin. Ether holders can draw loans in the form of LQTY with algorithmically adjusted redemption and loan issuance fees. Liquity is a decentralized borrowing protocol that enables users to secure interest-free loans using Ether (ETH) as collateral. This innovative platform introduces a stablecoin, LUSD, pegged to the USD, which borrowers receive as the loan amount. What sets Liquity apart from other borrowing protocols is its unique approach to interest and governance. Unlike traditional lending platforms that charge ongoing interest, Liquity only imposes a one-time fee of 0.5% on loans issued in LUSD. This feature makes it an attractive option for users looking to leverage their ETH holdings without the burden of accruing interest over time. Additionally, Liquity maintains a minimum collateral ratio of 110%, ensuring a buffer against market volatility and protecting the protocol's stability.

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Liquity v2: The self-healing CDP. Liquity v1, being interest-free with a fixed-cost reward system, has proven to work reliably in low-interest environments and continues to be a viable option for borrowers in such scenarios. However, in changing environments, there is a need for a protocol that is completely market-driven - a self-healing protocol that can adapt to any market situation without the need for governance. Liquity v2 allows users to set their own interest rates, empowering them to become active interest rate makers. This democratizes the borrowing process, giving users more control and autonomy to tailor their rates based on their risk tolerance. While borrowers can freely set and adapt their individual interest rates, they are expected to manage their rates in line with the market to avoid redemptions. Borrowers will pay recurring interest for the duration of their loans, benefiting from greater flexibility. Liquity v2 expands collateral support to include ETH along with select LSTs. Borrowers can thus get liquidity or leverage while benefiting from auto-compounding staking yields. Each asset will have its own borrow market with distinct interest rates and risk parameters, further compartmentalizing risk. This also means that each borrow market will be able to develop its own range of rates. Liquity v2 eliminates Recovery Mode, enabling users to maintain higher loan-to-value (eg. 91% for WETH) ratios and reducing the risk of sudden liquidations. This is thanks to the sustainable yield that Stability Pool depositors receive from the interest rates that borrowers pay. Liquity v2 enhances this feature with a more sophisticated approach to redemptions. Instead of targeting the loans with the lowest collateral ratio, redemptions on v2 will now be performed in ascending order of individual interest rates. Unlike Liquity v1 and $LUSD, a significant portion of the interest rates generated by the protocol goes towards BOLD Stability Pool depositors and liquidity providers on select DEXes In summary, Liquity v2 builds on the strong foundation of v1 with enhancements that improve flexibility, efficiency, and make it adaptable to any market condition.

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