Liquity USD (LUSD) is stablecoin linked to a decentralized borrowing protocol.
Strangely, Liquity makes 0% interest loans against Ethereum (ETH). Liquity uses Ethereum (ETH) as collateral but pays out in Liquity USD (LUSD). They claim 110% collateral makes the loans safer. Liquity has no governance fees because algorithms fully automate it.
Liquity (LUSD) is a stablecoin that makes payment in US Dollars. Hence, Liquity can make US dollar loans using Ethereum (ETH) collateral. They claim users can redeem LUSD for US dollars at face value.
How Liquity Makes Money
Holders of the Liquity (LQTY) cryptocurrency and Liquity (LUSD) can make money by providing Ethereum liquidity for loans.
Liquity makes money by charging each user a 0.5% to 5% borrowing fee. They base the borrowing fee on the amount of liquidity the user draws.
Users can earn liquidation gains and LQTY rewards by depositing LUSD in the stability pool. The stability provides liquidity for LQTY and LUSD.
The stability pool backs LUSD by providing a collateral ratio of 110%. Theoretically, this gives LUSD a high level of safety. Users who maintain a 110% collateral ratio can repay their debt at anytime.
How Liquity Lending Works
The stability pool contains liquidated Troves. To elaborate, a Trove is the account that backs a Liquity loan. Each Trove has an Ethereum address.
A Trove contains two balances: an Ethereum (ETH) balance and a LUSD balance. Hence, Liquity users can receive Ethereum or US dollar payouts. Liquity borrowers can close their Trove off anytime by paying their debts.
Users will pay a 200 LUSD ($200) Liquidation Reserve charge. Liquity will return this fee on repayment of debt, but keep it if they do not pay the debt.
If they do not repay the debt, Luiqity can get its money back by liquidating the Trove. Users avoid liquidation by maintaining a minimum collateral ratio (MCR). The MCR is an amount of Ethereum that exceeds the US dollar debt. If the MCR falls below the US dollar debt, Liquity will liquidate the Trove.
What Value Does Liquity (LQTY) offer?
Mr. Market thinks Liquity (LQTY) offers some value because CoinMarketCap ranked it 157th on 3 April 2023. Liquity claimed to have a $732.099 million Total Value Locked on 3 April 2023.
In contrast, CoinMarketCap gave Liquity a $2.17 Coin Price, a $198.716 million Market Capitalization, a $217.032 million Fully Diluted Market Cap, and a $711.497 million Total Value Locked on 3 April 2023. However, Liquity had a $59.627 million 24-Hour Market Volume, a $57.588 million Centralized Exchange (CEX) Volume, and a $1.504 million Decentralized Exchange (DEX) Volume on 3 April 2023. They base those numbers on a Circulating Supply of 91.545 million LQTY and a 100 million LQTY Total Supply.
In comparison, CoinMarketCap gave Liquity USD (LUSD) a $1.01 Coin Price, a $271.187 million Market Capitalization, a $271.648 million Fully Diluted Market Cap, a $2.08 million 24-Hour Market Cap, a $23 Centralized Exchange (CEX) Volume, and a $1.955million Decentralized Exchange (DEX) Volume on 3 April 2023. They base those numbers on a 268.506 million Circulating Supply. LUSD was CoinMarketCap’s 222nd ranked cryptocurrency on 3 April 2023.
I think Liquity is a decentralized finance (DeFi) app that could make money because it forces borrowers to put up 110% in Ethereum (ETH). Hence, there is 110% in each loan in tradable assets. Additionally, Liquity USD is a strong stablecoin for which there could be a demand.
I think there could be an enormous market for stablecoin loans and cryptocurrency out there. Liquity could be a leader in that market if the claims about 110% Ethereum (ETH) are true. Speculators need to examine Liquity because it could cash in on blockchain loans. However, Liquity could collapse if the price of Ethereum collapses.
