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Zero coupon borrowing Liquity: chain | project is introduced

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Use your crypto assets more effectively

Stablecoins, as the most common medium of exchange for value in the crypto world, act as the unit of account for assets on the chain. However, the stablecoins with the highest market value, USDT and USDC, are issued by centralized institutions, so there are extremely high centralized risks.

Drived by DEFI, the decentralized stablecoin led by DAI has begun to rise. Users can sell their crypto assets as collateral and print stablecoin to release the liquidity of assets. According to Oklink, the decentralized stablecoin DAI has reached a staggering $2.53 billion market cap.

Image credit: Oklink

One of the great advantages of decentralized stablecoins is that they are not dependent on the liquidity of the lender. The borrower interprints the stablecoin with the agreement, so essentially, the mortgage loan loan agreement can create unlimited and cost-free liquidity since there is no refinancing risk. However, the current mortgage lending platform will continue to charge a floating Fee, which is similar to the role of interest and is used to dynamically regulate the volume of liquidity in the market, so as to continuously anchor the target price of the stable currency. But does this mechanism really work?

First, debt holders are not aware of the dynamic rates, and changes in the rates do not affect their repayment plans much. Secondly, for short-term speculators, the rate will not be a factor when they consider whether to borrow money because they have found a clear speculative target. Therefore, this rate may not be able to achieve the role of anchor currency price, but it imposes unnecessary costs on borrowers.

At the same time, the asset mortgage rate of the existing mortgage lending platform is too high, resulting in a very low utilization rate of funds. The high mortgage rate on the one hand affects the volume expansion rate of crypto finance, on the other hand reflects the low efficiency of the clearing mechanism of the existing mortgage lending platform.

Liquity, a new mortgage lending platform, offers an answer to these questions.

A new generation of mortgage lending agreements Liquity

The biggest advantage of Liquity is that the agreement does not charge any interest or floating fees, and users get the protocol stablecoin LSD by pledging the ETH. The user shall pay the seigniorage in a lump sum at the time of coinage. The rate will be 0.5% to 5% of the loan principal. The seigniorage will be adjusted dynamically according to the price of the stablecoin to keep its price anchored to the price of the subject matter. At the same time, the agreement will also set aside 50LUSD as a liquidation reserve, which will be put into the fund as the Gas cost for liquidation. If no liquidation occurs, 50 LSD is returned to the user.

For example, when the seigniorage is 1.2% and the user casts 1000 LUSD with 5 ETH, there will be a liquidation retention of 50LUSD and a seigniorage of 12LUSD, the user will still get 1000 LUSD, but his debt will be 1000+50+12=1062LUSD. If there is no liquidation, the 5 ETH pledges are redeemed by a payment of 1012LUSD upon repayment of the debt.

Secondly, in terms of the clearing mechanism, Liquity abandons the traditional discount clearing mode. The liquidation mechanism of the traditional mortgage loan agreement is that when the mortgage rate drops to the clearing point, the mortgage will be sold at a discount in order to make the mortgage be sold in the shortest time to prevent the further decline of the price, which is also the reason for the high mortgage rate of the traditional mortgage agreement.

Liquity uses a new clearing mechanism that lowers the minimum collateral rate to 110 per cent. In Liquity the liquidated collateral is first absorbed into a "stable pool", so there is no need to attract secondary buyers at a discount. LSD holders can inject LSD into the stability pool, and participants receive the right to buy collateral at a discount, as well as LQTY tokens as rewards.

LQTY holders are rewarded by pledging a share of the Liquity rate.

Team to introduce

Robert Lauko graduated from the University of Zurich with a Juris Doctor degree as co-founder and CEO of Liquity. In the summer of 2017, Robert became the first Definity Foundation member to be based in Switzerland. After years of exploring the on-chain consensus algorithm, incentive mechanism and other fields, we decided to establish on-chain mortgage lending agreement Liquity in 2020.

Rick has worked in the software development field for many years as Lead Developer at Liquity, and has focused on Ethereum Gas Accuracy and Optimization in the blockchain space. On the Liquity team, Rick is responsible for back-end smart contract development and security testing.

Investment institutions

Recently, the major funds are very concerned about the on-chain middleware, and the on-chain lending area is the most indispensable part of DEFI. Liquity, of course, is also getting attention from big, reputable funds. In September 2020, Liquity closed a $2.4 million seed round led by Polychain, with other investors including A_Capital, Lemniscap, and 1KX. Currently, the only way to get LQTY tokens is to pledge LSD, and in the future, the rhythm will follow other developments on Liquity.