Liquity V2 is a decentralized borrowing protocol that allows users to borrow against Ethereum (ETH) and other liquid staking tokens (LSTs). Keep reading to understand the key benefits of Liquity V2.
1. Multiple collateral types. Liquity V2 supports both ETH and various LSTs as collateral. This allows users to leverage or obtain liquidity while earning staking rewards on their assets.
2. User-set interest rates. Borrowers can choose their interest rates within a range between 0.5% and 1000%. This allows them to manage their redemption risk by adjusting their rates in response to market conditions.
3. Improved peg dynamics. The new interest rate system enhances the stability of BOLD, the stablecoin issued by Liquity V2. By allowing interest rates to fluctuate based on market demand, BOLD's price stability is maintained through direct arbitrage opportunities and flexible interest rate adjustments.
4. Short-term borrowing. Without the upfront fees required by Liquity V1, Liquity V2 is more appealing to short-term borrowers and those seeking fast leverage.
5. Minimal governance. Liquity V2 operates with minimal governance, limited to distributing liquidity incentives via gauge voting. It has no other functions as the protocol’s smart contracts are immutable and not upgradeable.
Learn more: What Are Decentralized Derivatives and How Do They Work in DeFi?