Liquity (LQTY)

Borrowing

Liquity lets users deposit ETH as collateral to borrow LUSD, a stablecoin pegged 1:1 to the USD. Borrowers can use LUSD for purchases, reinvestment, or other financial needs without selling their ETH. Loans have a low collateral ratio (110%) and a one-time borrowing fee, with 0% interest.

Stability Pool

Users can deposit LUSD into the Stability Pool, which helps keep the system stable by repaying debt from liquidated loans. Depositors earn rewards in LQTY tokens and liquidation gains, making it a way to earn passive income.

LQTY Token Staking

LQTY tokens earned from Stability Pool participation can be staked to earn additional rewards, encouraging long-term involvement in the protocol.

Multiplying and Yield

Liquity V2 supports borrowing against staked ETH (like wstETH and rETH) and offers features like 1-click multiply to increase exposure. Users can also earn yield by depositing stablecoins or staking LQTY.

External Use Cases

Borrowed LUSD can be used outside the protocol, such as trading on exchanges, providing liquidity in other DeFi platforms, or yield farming, expanding its utility beyond just borrowing.

Governance-Free and Decentralized

Liquity operates without governance, meaning no single party controls the protocol. This ensures a decentralized, censorship-resistant borrowing experience.

Interest-Free Loans

Loans are issued with 0% interest, making borrowing costs predictable and potentially more affordable compared to traditional loans.

Pros of Liquity

• Decentralized borrowing: Liquity allows users to borrow against their Ethereum without selling it, using a stablecoin called LUSD.
• No interest fees: Borrowers pay a one-time borrowing fee instead of ongoing interest, which can be lower cost over time.
• Stability and liquidity: Liquity uses a stability pool and automated mechanisms to maintain price stability and liquidity for LUSD.
• Low collateral ratio: Users can borrow with a minimum collateral ratio of 110%, which is lower than many other protocols.
• Governance-free: Liquity operates without governance tokens, reducing complexity and potential governance risks.
• Efficient and fast: Transactions and borrowing are designed to be quick and gas-efficient on the Ethereum network.

Cons of Liquity

• Requires Ethereum collateral: Users must lock ETH, which exposes them to ETH price volatility.
• Liquidation risk: If collateral value falls below the required ratio, positions can be liquidated automatically.
• Complex for beginners: Understanding the mechanics of borrowing, stability pools, and liquidation can be challenging for new users.
• Limited to Ethereum: Liquity currently supports only ETH as collateral, limiting asset diversity.
• Smart contract risks: As with all DeFi protocols, there is a risk of bugs or exploits in the smart contracts.

These points summarize the main advantages and disadvantages of using Liquity for crypto borrowing and liquidity.

Founders

Liquity was founded by Robert Lauko and Rick (Richard) Pardoe in 2020. Robert Lauko is the CEO and Head of Research, with a Ph.D. in Law and a background as a researcher at Dfinity. Rick Pardoe is the co-founder and lead engineer, holding degrees in Physics and Economics.

Leadership and Team Roles

Robert Lauko focuses on the overall protocol design and research, while Rick Pardoe is mainly responsible for research and development. The current CEO is Michael Svoboda, who has experience as CEO and COO at several blockchain companies and holds degrees in computer science and economics.

Investors

Liquity has raised a total of $8.4 million over two funding rounds. The latest Series A round took place on March 19, 2021, raising $6 million. Fourteen investors participated in this round, with Pantera Capital leading the investment. Other known investors include Polychain Capital, A.Capital Ventures, Lemniscap, and several others.

Token Allocation to Investors

About 33.9% of the total LQTY tokens (33,902,679 LQTY) were allocated to Liquity's early investors. These tokens are subject to a one-year lockup period.

Team and Advisors

The team and advisors hold 23.7% of the tokens, with allocations for current and future employees and advisors, also under a lockup schedule.

Community and Reserves

The community holds 35.3% of tokens, including rewards for Stability Pool deposits, frontends, liquidity providers, and a community reserve for grants and events.

Summary

Key investors include Pantera Capital, Polychain Capital, A.Capital Ventures, Lemniscap, and others who participated in early funding rounds. The token distribution reflects a balance between investors, the team, and the community.

Halal Status of Liquity

• General Principle: Liquidity mining, which is the main mechanism behind earning rewards in protocols like Liquity, can be halal if it avoids interest (riba), operates transparently, and the rewards are based on actual trading activity rather than fixed or guaranteed returns.
• Income Source: If rewards come from shared trading fees and value-sharing rather than fixed interest or guaranteed returns, it aligns better with Islamic finance principles.
• Asset Nature: The underlying assets and tokens involved must be halal and not linked to haram industries.
• Scholarly Review: Each DeFi protocol, including Liquity, should be reviewed on a case-by-case basis by Islamic scholars to confirm compliance with Shariah law.
• Conclusion: Liquity can be considered halal if it meets these conditions, particularly if it provides liquidity and earns fees from trading activity without involving interest or prohibited elements.

Answer: Yes, Liquity is halal if it operates under Shariah-compliant principles such as avoiding interest, ensuring transparency, and involving halal assets.