Contents<\/p>
- 0.1<\/span> What is Liquidity USD?<\/a><\/li>
- 0.2<\/span> The working mechanism<\/a><\/li>
- 0.3<\/span> Main Features of the Liquidity USD<\/a>
- 0.3.1<\/span> Borrowing at Zero Interest<\/a><\/li>
- 0.3.2<\/span> Efficient Liquidations<\/a><\/li>
- 0.3.3<\/span> Redeemable Stablecoin<\/a><\/li>
- 0.3.4<\/span> Incentives for Stakers<\/a><\/li><\/ul><\/li>
- 0.4<\/span> Key Benefits of Liquidity USD?<\/a><\/li>
- 0.5<\/span> How to Use Liquidity USD?<\/a>
- 0.5.1<\/span> Frontend Operators<\/a><\/li><\/ul><\/li><\/ul><\/li>
- 1<\/span> Highly capital-efficient Through Instant Liquidation<\/a>
- 1.0.1<\/span> Price stability through Redemption<\/a><\/li>
- 1.0.2<\/span> One protocol, many front ends<\/a><\/li><\/ul><\/li>
- 1.1<\/span> Conclusion of Liquidity USD Review<\/a><\/li><\/ul><\/li><\/ul><\/div>\n
What is Liquidity USD?<\/span><\/h2>\n
Liquidity is a decentralized, non-custodial, governance, and immutable borrowing protocol. It allows users to lend and borrow in LUSD at zero interest rate against Ether as collateral.\u00a0 LUSD\u00a0 is a stable coin pegged in USD that needs to maintain a 110% minimum collateral ratio.<\/p>\n
The loans in the Liquidity protocol are secured by fellow borrowers who act as guarantors of last resort. The loans are also secured via a stability pool that contains LUSD.<\/p>\n
Buy Liquidity USD with Our Top Broker<\/span><\/a><\/div>\nThe Liquidity protocol has a native stable coin that is pegged to USD known as the LUSD. It can be fully redeemed at face value for primary collateral, which is distinct from other decentralized stable coins.<\/p>\n
The protocol is designed to allow users to mint tokens using a self-service mechanism similar to other stable coin systems. But the other stable coin systems adopted advanced governance mechanisms to maintain the dollar-peg through interest rates or updating fees.<\/p>\n
Liquidity algorithmically adjusts loan issuance and Redemption fees to support LUSD and eliminate the need for human intervention and interests. These loan issuance and Redemption fees are originally set at 0% and then increase gradually with the amounts redeemed.<\/p>\n
They tend towards zero if the Redemption activity reduces. The usage trend of Liquidity as a protocol that is leveraged against Ether will always tool the price part of Ether.<\/p>\n
It\u2019s founded by Robert Lauko and has a total locked value of\u00a0 $\u20092,441,876,946 as of August 9th<\/sup>, 2021.<\/p>\n
The working mechanism<\/span><\/h2>\n
The working mechanism of the Liquidity protocol is simple and easy to go by. The borrower holding Ether will first lock it up in a smart contract to create personal Liquidity positions – \u2018Trove. Each of the Troves created should have at least a 110% collateralization ratio which is exceptional in the Defi ecosystem. The borrower can then mint the desired LUSD tokens, which are recorded as debts to collateral.<\/p>\n
You can get almost 90.09 LUSD as a borrower if you use $100 worth of Ether. When you want to retrieve your collateral, you are expected to return the LUSD to the smart contract to redeem their loan.<\/p>\n
Then they will release or free your collateral; however, the lower the collateral requirements, the better the capital efficiency.\u00a0 For instance, if the liquidation ratio is set at 150%, the low-risk tolerance borrowers may be uncomfortable.<\/p>\n
They may keep their \u2018Trove\u2019s collateral ratio\u2019 at over 300% to survive any sudden drop in collateral price by 50%. But if liquidation happens at a ratio below 110%, the borrower will maintain a Trove\u2019s collateral ratio of 220%.<\/p>\n
A good capital efficiency enhances integration with other Defi protocols and increases Ether Market via a higher ROI. In addition, the system stability is strengthened by an increased number of borrowers and stability pool depositors.<\/p>\n
The stability pool depositors are rewarded with the surplus gains from the collateral from the liquidated Toves by borrowers. They also earn LUSD tokens as rewards from their initial deposits. LUSD is a utility token that tracks the amount of revenue generated by the Liquidity Protocol through staking. You can stake the LUSD to earn a percentage of the Liquidity protocol\u2019s revenue streams via Redemption and issuance of fees.<\/p>\n
Main Features of the Liquidity USD<\/span><\/h2>\n
The core features of the Liquidity protocol that distinguishes it from other similar Defi projects are explained below.<\/p>\n
Borrowing at Zero Interest<\/span><\/h3>\n
The Liquidity protocol allows you to borrow the stable coin LUSD at zero interest rate using Ether as collateral. Hence, Liquidity here is free. The protocol generates the LUSD tokens on its own. It doesn\u2019t share the capital cost on its borrowers nor regulates monetary supply based on the interest rates.<\/p>\n
It charges a one-time fee on its borrowers as a proportion of the withdrawal amount. The fee rate depends on the present base rate governed algorithmically by the protocol based on the volume of Redemption.<\/p>\n
Third-Party frontends<\/strong><\/p>\n
The Liquidity AG\u00a0 has no web interface of its own. You can access the protocol through a third-party application. Anyone is free to become a frontend operator using the SDK or Launch Kit and, in turn, earn a portion of the stability pool rewards.<\/p>\n
Censorship Resistant<\/strong><\/p>\n
Liquidity is known as a protocol instead of a network. Hence, no special privileged administrator can alter, interfere with or halt the protocol\u2019s operation. The protocol\u2019s third parties exclusively provide frontend operation that decentralizes the system and makes it censorship-resistant.<\/p>\n
The collateral ratio of 110%<\/strong><\/p>\n
The minimum collateral ratio of the Liquidity protocol is 110%, which is equivalent to a 90.09% loan-to-value ratio. This increases the capital efficiency of borrowing and allows for a leverage of investment up to 11 times.<\/p>\n
Borrowers always uphold their collateral ratio above 110% to prevent their Troves (positions) from becoming vulnerable to liquidation. The protocol\u2019s instantaneous and efficient liquidation mechanism maintains a high degree of robustness and supports a low collateralization ratio.<\/p>\n
Efficient Liquidations<\/span><\/h3>\n
Efficient and instantaneous liquidation of troves with a minimum collateralization ratio of 110% ensures that the system is stable. The liquidation process follows the order of priority below;<\/p>\n
- \n
- Offsetting:<\/strong> The LUSD token is kept in the stability pool. They are used in repaying the undercollateralized debt and then burned afterward. The borrower\u2019s collateral from the liquidated Trove is transferred to the stability pools.<\/li>\n
- Redistribution: <\/strong>If the LUSD in the stability pool is insufficient to cover the debt, the remaining collateral and debt are redistributed. They are transferred from the liquidated Trove to active borrowers according to their collateral amounts.<\/li>\n<\/ul>\n
The stability providers earn from donating to the system’s stability pools while liquidators are rewarded for carrying out prompt liquidation.<\/p>\n
Redeemable Stablecoin<\/span><\/h3>\n
LUSD is a stable coin that is fully redeemable. The system allows the LUSD token holders to pay back their LUSD at face value for the original Ether collateral.<\/p>\n
For instance, if you are redeeming 1000 LUSD, you will get Ether collateral worth $1000 from the riskiest Trove minus the Redemption fee. In addition, the Redemption process creates a background price for LUSD, returning it to parity anytime it goes below $1.<\/p>\n
- Redistribution: <\/strong>If the LUSD in the stability pool is insufficient to cover the debt, the remaining collateral and debt are redistributed. They are transferred from the liquidated Trove to active borrowers according to their collateral amounts.<\/li>\n<\/ul>\n
- 1.0.2<\/span> One protocol, many front ends<\/a><\/li><\/ul><\/li>
- 1.0.1<\/span> Price stability through Redemption<\/a><\/li>
- 1<\/span> Highly capital-efficient Through Instant Liquidation<\/a>
- 0.3.2<\/span> Efficient Liquidations<\/a><\/li>
- 0.2<\/span> The working mechanism<\/a><\/li>
![\"Liquidity](\"https:\/\/deficoins.io\/wp-content\/uploads\/2021\/08\/LUSDUSDT_2021-08-11_18-00-35-1024x766.png)