What is Liquity (LQTY)?

Deep Dive

1. Purpose & Value Proposition

Liquity solves the problem of expensive borrowing in decentralized finance (DeFi) by offering interest-free loans secured by overcollateralization. Users deposit assets like ETH to mint stablecoins (e.g., LUSD or BOLD), which maintain stability through a minimum 110% collateral ratio and liquidation mechanisms like the Stability Pool (Liquity Blog).

2. Technology & Upgrades

• V1: Launched in 2021, it relied on ETH-only collateral and a one-time borrowing fee. Redemptions (stablecoin-to-collateral swaps) were disabled initially to protect borrowers.
• V2: Introduced multi-collateral support (ETH, wstETH, rETH), user-set interest rates, and Protocol Incentivized Liquidity (PIL) controlled by LQTY stakers. V2’s BOLD stablecoin expands cross-chain utility via integrations like Chainlink’s CCIP (Gate.io).

3. Tokenomics & Governance

• Fixed supply: 100 million LQTY tokens, with ~35% allocated to community rewards and liquidity incentives.
• Staker control: In V2, stakers direct 25% of protocol revenue to liquidity initiatives, with voting power weighted by stake duration and size (Liquity V2 Guide).

Conclusion

Liquity is a pioneering DeFi protocol combining capital efficiency with decentralized governance, evolving from a simple ETH-backed stablecoin system to a multi-chain borrowing ecosystem. Can Liquity’s staker-driven model and BOLD adoption challenge established players like MakerDAO in the long term?