Liquity USD (LUSD)

Borrowing and Lending

Liquity USD is a stablecoin pegged to the US dollar used within the Liquity protocol, a decentralized platform where users deposit Ether (ETH) as collateral to borrow LUSD at 0% interest. Borrowers lock up ETH in a "trove" and receive LUSD loans, which they can use elsewhere or repay later.

Stability Pool and Debt Management

LUSD is used in the Stability Pool, which helps maintain the system's solvency by repaying debt from liquidated loans. Users who deposit LUSD into this pool act as guarantors and earn LQTY tokens as rewards.

Trading and Collateral Use

LUSD tokens are freely tradable on decentralized exchanges and can be used as collateral for further borrowing or sold to buy more ETH, enabling cyclical borrowing strategies.

Rewards and Staking

Users who provide LUSD to the Stability Pool earn LQTY tokens, which can be staked to gain additional rewards, creating passive income opportunities within the Liquity ecosystem.

Cross-Chain and Integration

LUSD has growing liquidity and trading volume on Layer 2 networks like Optimism and Arbitrum, enabling advanced use cases such as using LUSD as collateral in other DeFi protocols.

Pros

• Liquity USD is a stablecoin pegged to the US dollar, designed to maintain a stable value close to $1.
• It offers interest-free loans using Ethereum (ETH) as collateral, with only a one-time borrowing fee.
• The minimum collateral ratio is low at 110%, allowing more efficient use of ETH as collateral.
• The protocol is decentralized, governance-free, and runs on immutable smart contracts, providing censorship resistance.
• Users can earn rewards by participating as stability providers or stakers, receiving incentives in LQTY tokens.
• Liquity uses algorithmically adjusted fees instead of variable interest rates, helping maintain stability.
• LUSD can be redeemed for ETH at face value, ensuring a price floor and maintaining the peg.
• Multiple independent frontends allow users to interact with the protocol, enhancing decentralization.

Cons

• The protocol depends on the price of ETH; if ETH price drops significantly, loans below 110% collateral can be liquidated.
• Liquity USD has experienced brief de-pegs in the past during market stress.
• Liquity does not run its own frontend, so users rely on third-party operators, which may vary in trustworthiness.
• The trading volume of Liquity USD is relatively low compared to many other cryptocurrencies, which may affect liquidity.
• Users must be cautious of fake tokens on decentralized exchanges when acquiring Liquity USD.
• The system is complex and may require users to understand collateralization and liquidation mechanics.

Founders

Liquity USD was co-founded by Robert Lauko and Rick Pardoe.

Robert Lauko

He is the founder and Head of Research at Liquity. Lauko has a background in traditional finance and has experience researching algorithms, network monitoring, and scalability issues. He also holds a Ph.D. in Law and previously worked as a blockchain researcher at the DFINITY Foundation.

Rick Pardoe

He is the co-founder and Lead Engineer of Liquity. Pardoe holds degrees in Physics and Economics and has expertise in Solidity development. Before Liquity, he worked at ETHDevs.com.

Additional Team Member

Michael Svoboda is the current CEO of Liquity. He has experience as CEO and COO at several blockchain companies and holds degrees in computer science and economics.

Investors in Liquity USD

Investors in Liquity USD include several large industry players such as Pantera Capital and Alameda Research. Additionally, Liquity has raised $8.4 million from a group of 24 investors, including AngelDAO among others. These investors support the development of the decentralized borrowing protocol that issues Liquity USD as a stablecoin collateralized by Ethereum.

Halal Status of Liquity USD

Liquity USD is considered halal because it is a decentralized stablecoin pegged to the US dollar and is used within the Liquity protocol, which offers interest-free loans secured by Ethereum collateral. The absence of interest (riba) and the protocol's design to avoid floating interest rates support its halal status.

Reasoning

• Liquity USD loans have a 0% interest rate, which aligns with Islamic finance principles.
• The protocol is decentralized, immutable, and governance-free, reducing human interference and uncertainty.
• Loans are overcollateralized with Ethereum, ensuring transparency and security.
• The system replaces floating interest rates with a one-time fee, avoiding riba.

Answer: Yes, Liquity USD is halal.