Liquity (LQTY)

Borrowing

Liquity allows users to deposit ETH as collateral and borrow LUSD, a stablecoin pegged to the US dollar, at a minimum collateral ratio of 110%. Loans are interest-free, with only a one-time borrowing fee. Borrowers can use LUSD for purchases, trading, or other financial activities without selling their ETH.

Stability Pool

The Stability Pool helps keep the system stable by providing liquidity to cover debts from liquidated loans. Users can stake LUSD in the Stability Pool to earn rewards in LQTY tokens, supporting the platform’s solvency and earning passive income.

LQTY Token and Staking

LQTY is the protocol’s native token. Users earn LQTY rewards by providing liquidity in the Stability Pool. They can also stake LQTY tokens in the protocol’s staking contract to receive additional rewards, encouraging participation and liquidity in the ecosystem.

Low-Cost Financing

Liquity offers a decentralized, low-cost lending option with no ongoing interest, making it attractive for users who want flexible and affordable loans backed by ETH collateral. This helps users manage their assets efficiently in volatile markets.

Pros

• Decentralized Borrowing: Liquity allows users to borrow stablecoins (LUSD or BOLD) using ETH or liquid staking tokens as collateral without intermediaries.
• Governance-Minimized & Immutable: The protocol operates without admin keys or upgradeable contracts, reducing centralization risk and ensuring predictable, unchangeable rules.
• Interest-Free Loans: Users can borrow without paying interest, only a one-time fee when borrowing or redeeming.
• Resilience: Liquity has proven its stability and liquidation mechanisms through multiple volatile market conditions.
• User Control: Users retain full control over their assets and borrowing costs.
• Innovative Features: Includes yield-amplifying bonding mechanisms and support for staked ETH as collateral.
• Transparency: Runs on Ethereum with smart contracts providing transparency and security.
• Decentralized Frontends: No official frontend, promoting censorship resistance and decentralization.

Cons

• Limited Incentives for Adoption: Prioritizing decentralization means less spending on liquidity incentives, which can limit adoption and liquidity.
• Immutability Limits Updates: The protocol cannot be upgraded, which restricts the ability to fix issues or add new features.
• Volatility Risk: Collateral (ETH) value can fluctuate, affecting loan stability.
• Complexity for Beginners: Some features and mechanisms may be difficult for new users to fully understand.
• No Official Frontend: Users must rely on third-party frontends, which vary in trustworthiness and functionality.

Founders

Liquity was founded by Robert Lauko and Rick Pardoe. Robert Lauko is the Founder and Head of Research, with a background in law and experience at DFINITY. Rick Pardoe is the co-founder and lead engineer, specializing in software engineering and blockchain development.

Background and Roles

Robert Lauko started the project and developed the initial prototype. Rick Pardoe took over the core Solidity development to shape the protocol. Together, they launched Liquity in 2021 as a decentralized borrowing protocol on Ethereum.

Location and Funding

The company is based in Baar, Switzerland, and was founded in 2020. It has raised significant funding from investors like Pantera Capital and Polychain.

Investors in Liquity

Liquity has raised a total of $8.4 million from 24 investors. Some of the notable investors include Polychain Capital, Alameda Research, Pantera Capital, Nima Capital, A.Capital, Lemniscap, 1kx, DFINITY Ecosystem Fund, Robot Ventures (Robert Leshner), Alex Pack, AngelDAO, and Tomahawk.VC. These investors have supported Liquity through seed and early-stage funding rounds.

Investor Roles and Support

Many investors are not only financial backers but also active participants and advisors, helping to grow the protocol and bootstrap the network. They support Liquity’s mission to provide interest-free borrowing against Ethereum collateral and contribute to the development and adoption of its decentralized finance products.

Halal Status of Liquity

Liquity is generally considered halal because it offers interest-free borrowing by allowing users to draw stablecoin LUSD against Ether collateral without charging interest. This aligns with Islamic finance principles that prohibit riba (interest).

Reasoning

The protocol’s model avoids interest (riba) by charging no interest on loans, which is a key factor in determining halal compliance. Instead, it uses a one-time fee structure and collateral-backed loans, which are more acceptable under Shariah law.

Summary

• Interest-free borrowing against collateral
• No involvement with interest-bearing assets
• Fees are one-time and not recurring interest charges

Therefore, Liquity can be seen as halal based on its interest-free lending mechanism and compliance with Islamic finance principles.