Liquity (LQTY)

Overview

Liquity is a borrowing protocol built on Ethereum. It lets people use Ether or certain forms of staked Ether as collateral to create a dollar-pegged stablecoin. A borrower keeps exposure to their deposited asset while receiving tokens they can use elsewhere. The protocol runs through smart contracts, which carry out borrowing, repayment, and liquidation rules on-chain. (docs.liquity.org)

Liquity has two versions. Liquity V1 issues LUSD against ETH and charges a one-time borrowing fee rather than ongoing interest. Liquity V2 issues BOLD against ETH or supported liquid staking tokens and lets borrowers choose an ongoing interest rate. Both versions continue to operate. LQTY is the token that connects users to parts of this ecosystem: it earns fee revenue from V1 when staked and gives stakers a limited voting role in V2. (docs.liquity.org)

History & Team

From LUSD to BOLD

Robert Lauko founded Liquity, and Rick Pardoe is its co-founder and lead engineer. Lauko worked on the protocol’s research and previously worked at DFINITY; Pardoe develops Solidity smart contracts. Liquity V1 launched on Ethereum in April 2021. Before launch, Liquity announced a $6 million Series A round led by Pantera Capital, with participation from Nima Capital, Alameda Research, and others. The team also named 1kx, Lemniscap, and Tomahawk.VC among its supporters. (liquity.org)

Liquity AG is based in Switzerland. The team page lists Samrat Lekhak as CEO and Lauko as a research consultant. Over time, the project expanded beyond its original ETH-backed stablecoin. Liquity V2 launched on Ethereum in May 2025, adding BOLD, new collateral choices, and new uses for LQTY while leaving V1 available. (liquity.org)

Technology & How It Works

Borrowing in V1

A V1 borrower deposits ETH into a position called a Trove and draws LUSD. The Trove must normally hold ETH worth at least 110% of its debt. For example, debt of 1,000 LUSD requires ETH valued at no less than $1,100 under that rule. The collateral ratio changes as ETH’s value changes. A Trove that falls below the required level can be liquidated, meaning its debt is settled and its collateral is distributed through the protocol. V1 loans have no set repayment date, and borrowing carries a one-time fee. (docs.liquity.org)

V1’s Stability Pool supplies LUSD to settle debt from liquidated Troves. Depositors give up a share of their LUSD when that happens and receive a share of the ETH collateral. They also receive LQTY rewards under the protocol’s issuance schedule. A separate redemption process lets LUSD holders exchange their tokens for ETH valued at one dollar per LUSD. That option helps link LUSD to its dollar target. (docs.liquity.org)

Borrowing in V2

V2 creates BOLD against ETH, wrapped staked Ether called wstETH, or Rocket Pool’s staked Ether token, rETH. Each collateral type has its own borrowing market and Stability Pool. Borrowers set the interest rate on their Troves. BOLD redemptions generally start with Troves offering the lowest rates, giving borrowers a reason to weigh borrowing cost against redemption priority. BOLD holders can redeem for eligible collateral through the protocol. (docs.liquity.org)

Interest paid by V2 borrowers is divided by a fixed rule: 75% goes to the relevant Stability Pool, and 25% funds protocol liquidity incentives. BOLD depositors can receive interest revenue and collateral from liquidations. LQTY stakers vote on which eligible initiatives receive the liquidity-incentive portion. That vote directs incentives; it does not change V2’s core borrowing rules. (docs.liquity.org)

Tokenomics & Utility

Supply and distribution

LQTY has a maximum supply of 100 million tokens. Its launch allocation set aside about 35.3% for the community, 23.7% for the team and advisers, 33.9% for early investors, 6.1% for the Liquity AG endowment, and 1% for service providers. The community portion included rewards for V1 Stability Pool participants and frontend operators, incentives for an early LUSD–ETH liquidity pool, and a community reserve. Stability Pool reward issuance follows a schedule designed to distribute more tokens in earlier years and fewer in later years. (liquity.org)

What staking does

In V1, staked LQTY receives a share of fees from LUSD borrowing and redemptions, paid in LUSD and ETH. V2 adds voting power over the destination of its liquidity incentives. LQTY staked through V2 continues to receive V1 fee revenue, and the staking arrangement has no fixed lockup period. These are distinct roles: V1 staking shares fees with token holders, while V2 voting steers a portion of BOLD interest revenue toward approved liquidity initiatives. (liquity.org)

Ecosystem & Use Cases

Liquity gives ETH holders a way to obtain stablecoins without selling their collateral. Borrowed LUSD or BOLD can move through Ethereum applications that support those tokens. The Stability Pools serve another purpose: their deposits provide the tokens used in liquidations. In V2, borrowers can also use a “multiply” feature that borrows BOLD and uses it to acquire more ETH or staked ETH collateral in one process. (docs.liquity.org)

The ecosystem includes independent websites, called frontends, that provide access to Liquity’s smart contracts. Liquity lists Liquity.App, DeFi Saver, LQTY.IO, and Trove Zero among V2 frontends. Other teams have deployed “friendly forks” of V2’s code to create stablecoins for their own ecosystems. Those deployments are separate systems, while BOLD remains the stablecoin issued by Liquity V2 on Ethereum. (liquity.org)

Advantages & Challenges

Liquity’s rules give users a clear view of how positions work. V1 offers borrowing without ongoing interest, while V2 gives borrowers a choice of rate and accepts more forms of ETH collateral. Both versions use automated liquidations and redemptions rather than a lender deciding each transaction. V2’s limited voting scope lets LQTY stakers direct liquidity incentives without giving them control over the core contracts. (docs.liquity.org)

The design also has trade-offs. Borrowers must follow collateral ratios as ETH or staked ETH values change, and V2 borrowers must manage a rate as well as their collateral. V1 and V2 use different fees, stablecoins, and Stability Pools, which adds concepts for new readers to learn. Liquity’s core contracts are designed to be immutable, so changes to those deployed rules are limited. Access through independent frontends also means the user experience can differ from one website to another. (docs.liquity.org)

Where to Buy & Wallets

LQTY is available on Coinbase, Kraken, and Binance in supported regions. It can also be swapped through an Ethereum decentralized exchange such as Uniswap. Exchange access and payment methods depend on the platform and location. (coinbase.com)

LQTY is an Ethereum token, so it can be held in an Ethereum-compatible wallet such as MetaMask. A wallet connected to a supported Liquity frontend can also be used for staking. Liquity’s documentation identifies the Ethereum LQTY contract as 0x6DEA81C8171D0bA574754EF6F8b412F2Ed88c54D, allowing the token to be distinguished from LUSD and BOLD, which have separate roles and contracts. (metamask.io)

Regulatory & Compliance

Liquity AG is based in Switzerland, while LQTY trading and related crypto services are subject to the rules of each place where they are offered. In the European Union, the Markets in Crypto-Assets regulation, or MiCA, sets disclosure and service requirements for covered crypto assets. A MiCA white paper prepared for LQTY’s admission to trading classifies it as a crypto asset other than an asset-referenced token or e-money token. In the United States, the application of securities laws to crypto assets depends on the asset and the circumstances of its offer or sale. (liquity.org)

Shariah assessment requires attention to the activity being assessed. Islamic finance principles prohibit riba, or interest. V1’s loans have no ongoing interest, but they do charge a borrowing fee; V2 loans accrue borrower-set interest that funds Stability Pool payments and liquidity incentives. Holding LQTY, receiving V1 staking fees, and using V2’s interest-funded features therefore raise different questions under Islamic finance principles. The V1 borrowing model alone does not establish one halal classification for every use of LQTY. (ifsb.org)

Future Outlook

Liquity’s two-version structure gives the ecosystem different ways to serve stablecoin users: ETH-only, interest-free borrowing through V1, and broader collateral with user-set rates through V2. Further use of BOLD in Ethereum applications, participation in LQTY-directed incentives, and development by independent frontend and fork teams could shape how widely these tools are used. The token’s role is tied to those specific activities rather than to a general power to rewrite the protocol. (docs.liquity.org)

Summary

Liquity combines collateral-backed stablecoins with automated borrowing rules on Ethereum. LUSD and BOLD serve borrowers and stablecoin users, while LQTY connects holders to V1 fees and V2 liquidity-incentive voting. Understanding the differences between the two versions is the key to understanding what LQTY does in the Liquity ecosystem. (docs.liquity.org)