The latest decentralized finance protocol to launch on Ethereum is Liquity which aims to offer alternative decentralized borrowing mechanisms.
In an April 5 announcement, the Liquity Protocol confirmed that it’s deployed to Ethereum mainnet and is now live. The milestone launch comes after a year and a half of research and development, it added.
The decentralized borrowing protocol allows users to draw 0% interest loans against Ethereum, which is deposited as collateral. There is a low collateral ratio and loans are paid in Liquity’s new dollar-pegged stablecoin.
Loans paid out in new stablecoin
The protocol aims to tackle the problems associated with floating interest rates that can affect borrowers negatively. It used MakerDAO as an example. MakerDAO adjusts the rates to keep DAI pegged as close to a dollar as possible.
“The delicate balance of maintaining an asset’s peg is why many protocols must frequently adjust their interest rate to influence the behavior of borrowers.”
It added that floating interest rates can lead to market inefficiencies since borrowers don’t know the cost to borrow upfront.
Liquity aims to solve this by allowing DeFi users to take loans backed by ETH at 0% interest. The loans are paid out in a dollar-pegged stablecoin called LUSD, and the minimum collateral ratio is just 110%.
At any time, users can redeem LUSD at face value for the underlying ETH collateral. One LUSD equals $1 of ETH within the protocol.
The LUSD stablecoins can also be deposited in a Stability Pool. Users can then earn ETH and rewards in its native token, LQTY. Pool balances will decrease over time due to liquidations. However, the protocol will provide users with a pro-rata share of liquidated ETH along with LQTY rewards.
Users can also stake LQTY tokens to earn a share of borrowing/redemption fees charged by the protocol. The platform has no ‘frontend’ so in order to access it users must select a third-party app such as Zerion.
On March 30, Liquity announced that it had raised $6 million in Series A funding led by Pantera Capital. The round saw investments from Nima Capital, Alameda Research, AngelDAO. It also included individuals investments from Meltem Demirors, David Hoffmann, and Calvin Liu.
LQTY price skyrockets
The LQTY token debuted on the market at around $9 when it launched on April 5. In less than 24 hours, LQTY pumped to over $147 before retreating to around $92 at the time of press. This marks a monumental rise of 900% on its first day.
The crypto data provider reported that there are 42,593 tokens circulating out of a maximum supply of 100 million. This gives LQTY a current market cap of $3.4 million.