Liquity (LQTY)

Borrowing

Liquity lets users borrow LUSD, a stablecoin pegged to the US dollar, by depositing ETH as collateral. Loans have 0% interest and require a minimum collateral ratio of 110%. Borrowers pay only a one-time fee when taking out a loan.

Stability Pool

Users can deposit LUSD into the Stability Pool to help keep the system stable by covering debts from liquidated loans. In return, Stability Providers earn rewards in LQTY tokens.

Staking and Rewards

LQTY token holders can stake their tokens to earn additional rewards. LQTY is also given as an incentive to Stability Pool participants.

Liquity V2 Features

The upgraded version allows borrowing against multiple collateral types, user-set borrowing rates, and managing multiple loans (Trove) from one address, increasing flexibility and capital efficiency.

For more details, visit Liquity's official site.

Pros

• Liquity offers interest-free loans using ETH as collateral, which means you don’t pay ongoing interest like with traditional loans.
• It has a low minimum collateral ratio of 110%, making borrowing more capital efficient compared to other platforms that require higher collateral.
• The protocol is fully decentralized and governance-free, meaning no one controls or can change the system after launch.
• Users retain full control over their assets since the system is non-custodial and runs on smart contracts.
• Liquity issues loans in a USD-pegged stablecoin (LUSD), providing price stability for borrowers.
• The system uses a Stability Pool to secure loans and maintain solvency, adding an extra layer of security.
• Liquity supports borrowing against ETH and staked ETH tokens (like wstETH and rETH) in its V2 upgrade.
• The platform charges a one-time borrowing fee instead of ongoing interest, which can be cheaper over time.
• Liquity’s smart contracts are immutable, meaning the rules cannot be changed, which adds predictability.

Cons

• The one-time borrowing fee can be high depending on market conditions.
• Liquity requires a minimum collateral ratio, so if ETH price drops sharply, borrowers may face liquidation.
• The system relies on algorithmic mechanisms and oracles for price feeds, which can be complex for new users to understand.
• Liquity does not have a native frontend, so users must interact through third-party interfaces, which may vary in quality.
• The protocol’s governance-free design means no community votes to adapt or improve the system quickly.
• Liquity’s stablecoin (LUSD) and token (LQTY) prices can be volatile in the crypto market.
• It is mainly designed for users familiar with DeFi and Ethereum, so it may be less accessible for beginners.

For more details, visit the official website: liquity.org

Founders of Liquity

• Robert Lauko: Founder and Head of Research at Liquity.
• Rick Pardoe: Co-founder and Lead Engineer, with degrees in Physics and Economics.

These two started Liquity, a decentralized borrowing protocol on Ethereum.

Investors in Liquity

• Venture Capital Firms: Liquity raised $6 million in a Series A funding round led by Pantera Capital, a well-known crypto venture capital firm.
• Crypto-Specific Funds: Other investors include Alameda Research and AngelDAO, which are prominent in the crypto investment space.
• Individual Investors: Early individual investors who have supported the project since its launch.
• Total Funding: Liquity has raised about $8.4 million over two funding rounds from around 22 investors.

These investors helped Liquity develop its decentralized borrowing protocol that offers interest-free loans backed by Ethereum.

Halal Status of Liquity

• Yes, Liquity can be considered halal if the project and its mechanisms comply with Islamic finance principles.
• The key factors include:
  • No involvement in interest (riba) or fixed interest-like returns.
  • No excessive uncertainty (gharar) or gambling (maysir).
  • The token is used as a digital asset or commodity, not for prohibited activities.
• Liquity operates as a decentralized borrowing protocol with collateralized loans and stability fees, which some scholars view cautiously.
• Since Islamic scholars differ and rulings depend on detailed contract and usage review, it is best to verify if Liquity’s specific structure aligns with Shariah compliance.

In summary, Liquity may be halal if it avoids interest-based lending and complies with Islamic financial ethics, but individual due diligence or scholarly advice is recommended.