Liquity USD (LUSD)

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Borrowing

Liquity USD is mainly used for borrowing. Users deposit their Ether (ETH) as collateral and borrow Liquity USD against it. This allows them to get a stablecoin loan without selling their ETH.

Stability Pool

Liquity USD is used in the Stability Pool, which helps keep the system stable. Users deposit Liquity USD into this pool to help repay debts from liquidated loans, ensuring the total supply of Liquity USD is backed by collateral.

Rewards and Staking

Users who provide Liquity USD to the Stability Pool earn LQTY tokens as rewards. These LQTY tokens can be staked to earn even more rewards within the Liquity ecosystem.

Stable Medium of Exchange

Liquity USD acts as a stablecoin pegged to the US dollar, providing a stable value for transactions and loans within the Liquity protocol.

Cross-Chain Use

Liquity USD is expanding its use on other blockchain networks like Optimism and Arbitrum, enabling more advanced uses such as using Liquity USD as collateral on these chains.

Efficient Capital Use

Liquity USD allows borrowing with a low minimum collateral ratio (110%), making it efficient for users to access loans with less collateral compared to other platforms.

Advantages

• Liquity USD is a stablecoin pegged 1:1 to the US dollar, providing price stability.
• It allows users to take out interest-free loans by using Ether (ETH) as collateral.
• Loans require a low minimum collateral ratio of 110%, making borrowing more accessible.
• The protocol uses a Stability Pool and collective borrower guarantees to secure loans.
• Liquity has a proven liquidation and price stability mechanism that has been tested during market fluctuations.
• Users pay a one-time borrowing fee instead of ongoing interest, which can be more cost-effective.
• The system is decentralized, non-custodial, and governance-free, giving users control over their assets.
• Liquity offers incentives for participation and supports a dynamic DeFi ecosystem.
• Liquity V2 expands collateral options and introduces a market-driven rate system, giving users more control over borrowing costs.

Disadvantages

• Some features of the protocol are innovative but also controversial, which may present competitive disadvantages.
• The borrowing fee can increase automatically if there are frequent withdrawals, which might discourage borrowing at times.
• Exposure to smart contract and market risks is still present.
• The list of frontend operators is not fully vetted, so users should be aware of potential trust issues with interfaces.
• Liquity USD’s market cap and trading volume are relatively modest compared to larger stablecoins, which might affect liquidity.

Founders

Liquity USD was founded by Robert Lauko and Rick (Richard) Pardoe.

Backgrounds

Robert Lauko is the CEO and Head of Research at Liquity. He has a Ph.D. in Law and experience in traditional finance, algorithms, network monitoring, and scalability. Rick Pardoe is the co-founder and Lead Engineer, holding degrees in Physics and Economics.

Roles

Robert Lauko leads the company and research efforts, while Rick Pardoe focuses on engineering and development.

Investors in Liquity USD

Liquity USD has raised a total of $8.4 million over two funding rounds. The investors include:

• Series A Round Investors: Led by Pantera Capital, with follow-on investments from Nima Capital, Alameda Research, Greenfield.one, IOSG, AngelDAO, and others.
• Seed Round Investors: Led by Polychain Capital, with participation from a_capital, Lemniscap, 1kx, DFINITY Ecosystem Fund, Robot Ventures (Robert Leshner), Alex Pack, and Tomahawk.VC.
• Additional Investors: NFX, Dragonfly Capital, and 22 investors in total have contributed across rounds, including 16 institutional and 6 angel investors.

These investors support Liquity USD’s mission to provide interest-free loans backed by Ethereum collateral.

Halal Status of Liquity USD

• Business Model: Liquity USD allows users to borrow the stablecoin LUSD interest-free against Ether collateral, which avoids interest (riba).
• Interest Exposure: Since borrowing is interest-free, it aligns with Islamic finance principles that prohibit riba.
• Shariah Compliance: Expert Shariah compliance ratings are available that analyze the protocol’s business model and interest exposure.
• Community Views: Discussions in Islamic finance forums suggest that interest-free borrowing on Liquity protocol is considered halal.
• Conclusion: Yes, Liquity USD is halal because it offers interest-free borrowing secured by collateral, which complies with Islamic finance principles.