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@LiquityProtocol
Interest-free borrowing on #ETH. Home to #LUSD - the unstoppable stablecoin.
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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.
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.
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.
Multi-collateral support
v1 supports ETH as the sole collateral type, providing a straightforward and conservative option for users. 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.
Enhanced capital efficiency
v1's design included Recovery Mode to protect the system during extreme market downturns. The Recovery Mode is mainly needed due to a lack of sustainable yield for the Stability Pool, increasing reliance on redistribution for liquidations in the long term.
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.
This results in a more stable and predictable borrowing environment, improving capital efficiency.
Novel redemption mechanics
v1 pioneered robust built-in redemptions, ensuring stability for LUSD. The redemption feature allows any LUSD holder to exchange their stablecoins for $1 worth of ETH. When LUSD is below peg, users can buy it for e.g. $0.99 off the market and sell to the protocol for $1.00 worth of collateral; this mechanism maintains a hard price floor around $1 through direct arbitrage, and is key for LUSD’s reputation as the most resilient stablecoin.
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.
Redemptions will mostly target LSTs with lower Stability Pool backing to reduce exposure to the corresponding LST. As with the user-determined interest rates, v2 relies on market-driven mechanisms to manage and reduce risk in the system.
To mitigate potential losses for borrowers hit by redemptions, the redemption fee charged to the redeemer remains inside the affected Troves rather than being diverted as in Liquity v1.
Sustainable yield sources for $BOLD
A successful stablecoin should not only be unstoppable and decentralized, but flexible enough to adapt to rising or falling market 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.
This provides an attractive, sustainable, and predictable yield source, enhancing the value proposition for $BOLD holders and fostering long-term engagement.
By enshrining a portion of the borrow fees toward protocol-incentivized liquidity, Liquity v2 sustainably supports $BOLD liquidity on external DEXes.
Multiple Troves capabilities
To enhance user convenience, v2 makes it possible to manage multiple Troves from a single address.
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.
All the key enhancements that Liquity v2 brings in one glance 👇
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.
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.
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.
Multi-collateral support
v1 supports ETH as the sole collateral type, providing a straightforward and conservative option for users. 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.
Enhanced capital efficiency
v1's design included Recovery Mode to protect the system during extreme market downturns. The Recovery Mode is mainly needed due to a lack of sustainable yield for the Stability Pool, increasing reliance on redistribution for liquidations in the long term.
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.
This results in a more stable and predictable borrowing environment, improving capital efficiency.
Novel redemption mechanics
v1 pioneered robust built-in redemptions, ensuring stability for LUSD. The redemption feature allows any LUSD holder to exchange their stablecoins for $1 worth of ETH. When LUSD is below peg, users can buy it for e.g. $0.99 off the market and sell to the protocol for $1.00 worth of collateral; this mechanism maintains a hard price floor around $1 through direct arbitrage, and is key for LUSD’s reputation as the most resilient stablecoin.
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.
Redemptions will mostly target LSTs with lower Stability Pool backing to reduce exposure to the corresponding LST. As with the user-determined interest rates, v2 relies on market-driven mechanisms to manage and reduce risk in the system.
To mitigate potential losses for borrowers hit by redemptions, the redemption fee charged to the redeemer remains inside the affected Troves rather than being diverted as in Liquity v1.
Sustainable yield sources for $BOLD
A successful stablecoin should not only be unstoppable and decentralized, but flexible enough to adapt to rising or falling market 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.
This provides an attractive, sustainable, and predictable yield source, enhancing the value proposition for $BOLD holders and fostering long-term engagement.
By enshrining a portion of the borrow fees toward protocol-incentivized liquidity, Liquity v2 sustainably supports $BOLD liquidity on external DEXes.
Multiple Troves capabilities
To enhance user convenience, v2 makes it possible to manage multiple Troves from a single address.
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.
All the key enhancements that Liquity v2 brings in one glance 👇
Earning with BOLD Liquity v2 will provide stablecoin holders with: - Real, sustainable yield in the form of BOLD revenues - Arbitrage opportunities across multiple Stability Pools - Higher stablecoin yield than traditional money markets Here's how 👇 Liquity v2 is built to not only provide a unique borrowing experience, but to also offer a dynamic marketplace between borrowers and stablecoin holders looking to earn attractive yields. The protocol will direct the lion’s share of its interest revenue to incentivize Stability Pool depositors (aka “Earners”), creating sustainable earning opportunities for BOLD holders. Unlike existing lending markets, Liquity v2 will generally be able to pass on a positive spread between borrowers and Stability Pool depositors depending on the utilization of BOLD in broader DeFi. This isn't possible on lending markets where borrowers always pay higher rates than what lenders receive. Stability Pool and liquidations Building on Liquity v1’s achievements, the protocol harnesses Stability Pools for efficient liquidations of bad debt and to ensure overcollateralization. In v2, depositors receive a pro rata share of the liquidated collateral for which the BOLD gets burned. BOLD deposits will thus be partially converted into ETH or LSTs as liquidations take place. In addition to liquidation gains, Stability Pool depositors in Liquity v2 (aka “Earners”) will receive a majority of the interest paid by the borrowers (in BOLD) of the respective borrow market, making it the primary source of yield. Multiple Stability Pools in v2 Unlike Liquity v1 with ETH as its sole collateral asset, Liquity v2 incorporates multiple Stability Pools, one for each collateral type (LSTs / ETH). Every collateral thus forms a separate borrow market with its own set of borrowers and a corresponding Stability Pool. Collateral risk is contained inside each group of borrowers (no mixing of collateral across borrow markets), while the exposure of depositors is primarily defined by the collateral asset they have opted for. However, as an overcollateralized stablecoin, BOLD ultimately remains dependent on all collateral assets, making collateral risk management particularly important. Liquity v2 introduces several new mechanisms to contain and reduce risk from each collateral: - Separate Stability Pools: the separation into multiple borrow markets and Stability Pools allows the markets to establish their own range of individual interest rates and risk parameters. - An adaptive redemption mechanism: collateral perceived by the market as risky will be preferentially redeemed to ensure the exposure of the system to this collateral type can be reduced. This mechanism will be covered in a separate post. These risk measures will be solely driven by market forces - there will be no need for governance oversight. Adaptive redemptions The protocol’s exposure to each LST will be reflected individually through the ratio between the debt collateralized by the LST and the size of the respective SP backing it. For example, the SP for pure ETH may cover 60% of the ETH-backed loans, while the SP for wstETH may only account for 40% of the wstETH-backed debt. This metric enables the protocol to manage collateral risks in an autonomous way by directing BOLD redemptions towards LSTs with lower SP backing. This mechanism is complemented by the fact that each borrow market will have its own redemption ordering based on the interest rates paid by its borrowers. Economic benefits of LST market segmentation Due to this economic segregation, each market will establish its own range of interest rates reflecting collateral risk, opportunity costs and competition. For example, borrowers are likely to pay higher average interest rates for LST-backed loans than for loans backed by pure ETH. Aside from just being a single stability pool depositor, users could also do more sophisticated strategies like the ones below. The interest rate difference will impact the amount of funds deposited into each Stability Pool, allowing the protocol to converge towards APRs reflecting the exposure to LSTs with different risk characteristics. To sum it up, depositors will have the choice to deposit their $BOLD to several Stability Pools depending on the expected yield and their desired exposure to collateral assets. While some depositors may chase the highest yield, others may, for instance, prefer more established LSTs over smaller cap LSTs. Creating sustainable yield generating opportunities is at the core of Liquity v2. By enshrining attractive Stability Pool yield, but also protocol incentivized liquidity, Liquity v2 aims to deliver predictable and sustainable yield opportunities with BOLD. Check the full article in the link below👇
Earning with BOLD https://t.co/DHpmPjpiBk
Earning with BOLD https://t.co/DHpmPjpiBk
optimistic spring on @Optimism is in full flow 🔴 looking for things to do with your LUSD? here are a few options 👇 1) @VelodromeFi holders and liquidity providers of LUSD can get LP rewards on 4 different stablecoin and ETH pairs! check it out: https://velodrome.finance/ 2) @PoolTogether_ @PoolTogether_ the permissionless savings protocol, just launched their new version. LPs can pool their LUSD into the LUSD vault and get extra OP rewards Check it out : https://pooltogether.com/
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🎉 Happy 3 years of Liquity! 🎈 What a journey it's been: • From pioneering immutable, interest-free borrowing ✅ • To becoming the first protocol to reach $1B within the first 10 days 👀 • To being one of the most forked protocols 😅 A heartfelt THANK YOU to our community for placing your trust in code, decentralization, and immutability 🙏 But the journey is far from over Liquity v2 awaits, and brings with it a new primitive: user-set interest rates. Onward!
in light of recent goVerNancE turmoil, a reminder that Liquity v2 will bring • no tradFi exposure • governance minimization • immutability • full autonomy over your interest rates max control, min reliance on third parties opt for peace of mind with $LUSD, and soon, $BOLD
Read our blog post on the borrowing enhancements that Liquity v2 brings here: https://t.co/tMzwTKq3C1 https://t.co/10GSvTpfty
Read our blog post on the borrowing enhancements that Liquity v2 brings here: https://t.co/tMzwTKq3C1 https://t.co/10GSvTpfty
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