About Liquity (LQTY)

Similar to MakerDAO, Liquity is a decentralized autonomous organization (DAO) that runs on Ethereum and strives to minimize the volatility of its dollar-pegged stablecoin. Liquity offers interest-free liquidity, its website says.

Loans are given in LUSD. That's the dollar-pegged stablecoin issued by the platform. LUSD gets rebalanced by way of an algorithmic monetary policy.

Borrowers use ETH (and only ETH) as collateral. They need to maintain a minimum collateral ratio of 110%.

A second native token, LQTY, is used for staking. It captures the fee revenue generated by the protocol.

"Although Liquity closely resembles MakerDAO," Messari Pro's Oguz Genc said, "it differentiates itself on a few dimensions."

Specifically, there's the 0% interest rate. Liquity also boasts higher capital efficiency, Genc explained, as well as a “robust peg mechanism for a more fair and simple user experience."

In addition to the collateral, the loans are secured by a stability pool containing LUSD and by fellow borrowers collectively acting as guarantors of last resort, according to the project. “We have the stability pool in our system which backs the loans, and by becoming a stability depositor you also get rewarded in our secondary token LQTY,” the project says.

Who created LQTY?

The founder of Liquity is Robert Lauko who obtained a Ph.D. in law from the University of Zurich. Lauko previously worked as a researcher at DFINITY, a Zurich-based non-profit organization developing technology for the Internet Computer blockchain. Having had a hand in multiple projects while at DFINITY, Lauko sharpened his DeFi chops. He researched DeFi protocols such as MakerDAO and Aave, both of which Lauko has said he found intriguing but not as efficient as they could have been, according to a Medium post. It was around 2019 that Lauko began to focus on Liquity, teaming up with UK-based developer Rick Pardoe on a prototype.

When was LQTY created and how much was it worth?

Liquity’s mainnet launched in early April of 2021. Within only a few days, the protocol's total value locked (TVL) soared to $1 billion (Medium). The LQTY token, used to incentivize early adopters, immediately took off, rising straight up to nearly $150.

How is the price of LQTY determined?

By the end of the first month of its existence in spring of 2021, the LQTY token lost nearly two-thirds of its value, falling from $150 down to about $40. It has declined steadily since. On April 30, 2022, LQTY reached its all-time low of $1.57, according to CoinGecko.

As Lauko himself explained, the way in which the protocol mints and distributes the LQTY was "heavily weighted towards the early adopters."

They jumped on board in the early days, fuelling a cycle of fee revenue growth. The protocol reached more than $2 billion in TVL by the autumn of 2021 but, as of the first quarter of 2022, the TVL was back down to $1 billion, making Liquity the 21st-largest DeFi protocol, as ranked by the total amount of assets deposited by its liquidity providers, according to Stelareum.

Why does LQTY have value?

TVL, as CoinDesk explains, has emerged as a key metric for gauging interest in DeFi projects.

Investors can look at TVL when assessing whether a DeFi project’s token is appropriately valued.

The market cap of the token may be high or low relative to the TVL of the project. The more extreme the relationship, CoinDesk noted, the more overvalued or undervalued the token may appear.

As more borrowers deposit LUSD to the Liquity stability pool, the more LQTY rewards are earned, and get staked to earn revenues, some of which are derived from those small, one-time issuance fees (paid in LUSD).

What are the main benefits of LQTY?

Liquity says it set out to improve borrowing conditions in the DeFi space and relies on the following primary benefits:

•  As mentioned, a 0% interest rate.
• A reasonable collateral ratio of 110%.
• Automation; operations are algorithmic.
• Fungible: LUSD can always be redeemed at face value for the underlying collateral.
• Liquity is optimized for making borrowing as attractive as possible.
• Lauko told DeFi Pulse.