How does being able to borrow without interest sound? While this may seem far from reality, Liquity makes it possible. All you need is to have Ether. Liquity, a decentralized borrowing protocol based on Ethereum, allows anyone to take out interest-free loans. And on LQTY, a stablecoin pegged to USD.
In this article, you can find answers to questions such as what is LQTY coin, how it works, what are its advantages, and you can master the details about the project.
What is Lqty Coin?
“What is Liquity coin?” can be defined as a decentralized borrowing protocol that makes it possible to use interest-free loans if Ether is used as collateral. In this context, it can also be said that there is a credit project for Liquity. The Liquity project uses the binary token model in the operation of its protocol. In this context, LQTY, the native token of Liquity, and LUSD, a stablecoin of this project, are in the lead.
Each cryptocurrency user may need to borrow for different reasons. In doing so, they may not want to part with their assets. Liquity, which comes into play at this point, paves the way for Ethereum holders to borrow by pledging their ETH assets as collateral with a minimum rate of 110%. So Liquity is telling users, “Don’t sell your Ethereum asset, give it to us. In return, we will give you the amount you need.”
The roles of LQTY and LUSD in this project are as follows:
Users who pledge their Ether (ETH) as collateral will receive the loan in LUSD. So LUSD’s job is to pay users who want to borrow money the amount they need.
LQTY coin is the native cryptocurrency of the Liquity project. This asset is used to reward those who participate in staking processes on the Liquity platform, reward those who deposit LUSD into stabilization pools, incentivize those who keep them connected to the Liquity protocol by providing a web interface to the end user.
Unlike most tokens, LQTY holders have no governance rights. Since the use of any project’s native token in governance processes and the whales holding this native token may create an unfair situation, Liquity has not included the governance function among the intended uses of its native token.
How Liquity (LQTY) Works
The Liquity platform uses Troves, known as collateralized debt positions (CDPs). Users can deposit LUSD into the so-called ‘Stabilization Pool’. This pool is used to absorb any debt arising from liquidations. When the Troves are liquidated, LUSD token holders in the Stabilization Pool receive a portion of the ETH pledged as collateral by users. Each LUSD token can be exchanged for $1 worth of ETH using the Liquity platform. However, a conversion fee is charged for this transaction.
The value of the liquidated collateral usually exceeds the value of the debt. LUSD holders can therefore often realize a net gain. This is because LQTY is given as a reward to users who deposit LUSD into the Stabilization Pool. Moreover, users can stake LQTY tokens obtained as a reward and in return receive a portion of the borrowing and repayment fees as a reward.
The Liquity protocol is accessible through a network of third-party frontends. The term Frontend Operator can be defined as a person who provides a web interface to the end user and connects them to the Liquity protocol. Frontend Operators receive LQTY rewards for their services. A list of active Frontends can be found on Liquity.org. Users can open collateralized debt positions (CDPs) or Troves by depositing ETH. This allows depositors to access LUSD liquidity which can then be staked to earn ETH and LQTY token rewards.
In order to better understand the Liquity project, it is necessary to briefly examine how LQTY and LUSD work.
LUSD Working Method
In fact, LUSD is different from most stablecoins. In this context, it can be stated that it has a new functioning. LUSD is redeemable for Ethereum (ETH) at its face value at any time. This means that it can be redeemed for 1 USD ETH, excluding the redemption fee.
The LUSD’s stability at $1 is helped by its price floor and ceiling. This relatively new system creates arbitrage opportunities known as ‘hard peg mechanisms’.
Moreover, LUSD uses “soft peg mechanisms” that ensure USD parity. This is called “parity as a Schelling point”, which is an implicit equilibrium state throughout the protocol. and borrowing fees on new debts are also included.
When LUSD falls below USD 1, this opens up arbitrage opportunities as LUSD can be redeemed for USD 1 worth of ETH. An increase in LUSD redemptions leads to an increase in the base rate of borrowing. As a result, borrowing becomes less attractive. This would help soften the supply of LUSD and prevent it from falling below $1.
LQTY Working Method
The LQTY token is used to reward Stabilizers and incentivize Frontend operators and early adopters by helping to stabilize LUSD. Users can earn Liquity coin rewards by depositing LUSD into the Stabilization Pool.
In addition, users who stake LQTY coins receive a share of the fees paid for issuing loans and LUSD redemptions. In addition, there is no time limit for staking LQTY tokens, while the rewards are distributed proportionally.
What are the Advantages of LQTY Coin?
As a decentralized finance (DeFi) protocol, Liquity has features that provide a number of advantages to cryptocurrency users.
- Decentralized Lending: Liquity enables cryptocurrency users to obtain loans by pledging their crypto assets (Ethereum) as collateral without recourse to a central authority. This could end the need for traditional financial institutions to borrow money.
- Low Transaction Fees: Liquity is an effective option for users with low transaction fees. The costs incurred by users when taking out and repaying loans on Liquity are low. This creates an alternative for borrowing compared to traditional financial institutions.
- Low Collateral Requirement: Users only need to provide a low collateral to get a loan. Liquity also paves the way for users who want to take out a loan to use cryptocurrency as collateral.
- User Protection: Liquity has LUSD, a stablecoin created for users to borrow and pay back debt. This asset offers protection against price fluctuations and allows users to more securely obtain and repay loans.
- Flash Loans: Liquity provides users with instant and temporary liquidity through flash loans. This opens up the opportunity for crypto assets to be used for profit under certain conditions.
Who is the Founder of LQTY Coin?
The founder of Liquity coin is Robert Lauko, who also currently serves as the project’s head of research.
Robert Lauko, formerly a researcher at DFINITY, where he was a major contributor to the Internet Computer project, graduated in Law from the University of Zurich. He completed his doctorate in law at the same university.
Lawyer etc. related to the field of law in many different institutions. Before launching Liquity, Lauko worked at DFINITY on consensus algorithms, fair incentive schemes, network monitoring and scalability issues, and much more.
When Was LQTY Coin Released?
LQTY coin was founded in 2020 after 18 months of development. The project was officially launched in April 2021.
How Much is LQTY Supply?
The total supply of LQTY coins is 100,000,000 (100 million). As of this writing, there is a 5.12% gap left for the circulating supply to reach 100%. This corresponds to 94,879,899 LQTY tokens at the moment.
Which Exchange Is LQTY Coin Traded On?
Today, LQTY coin is traded on many centralized and decentralized cryptocurrency exchanges, including those with a global presence. One of them is ICRYPEX, which has set the principle of providing a fast, safe and transparent service.
Thanks to ICRYPEX’s ‘Easy Trade’ feature, LQTY trading can be realized with just a few clicks. If trading is to be executed at set prices, trading can be completed via the ‘Pro Trade‘ section, where ICRYPEX has made it possible to use orders.