About Liquity USD (LUSD)
Liquity USD (LUSD) is an ERC-20 token launched and designed to power the underlying Liquity decentralized borrowing protocol. Liquity USD is designed to provide loans in liquidity agreements through its stablecoin backing.Ā
The platform is purposed to redeem a user's token against the underlying collateral at par. However, to access the loans offered by the platform, users need to have a Trove with a minimum deposit of ETH before accessing the LUSD network, thus opening up a 110% collateral rate to users.Ā
According to Liquity, the protocol is a decentralized lending system allowing users to obtain loans at 0% interest rates while collateralizing ETH. As a result of its deployment on the Ethereum Mainnet, Liquity USD is validated using a Proof-of-Stake (PoS) consensus mechanism - due to the Ethereum Merge. The current price of LUSD is live-tracked on Binance.Ā
Users can deposit LUSD tokens into a stable pool to receive rewards from ETH and LQTY, the protocol's secondary token. Over time, the balance of LUSD in the stabilization pool decreases as settlement transactions are executed on the network. In exchange, the protocol rewards users with a percentage of settled ETH and LQTY. While it provides several key use cases for its users, LQTY token holders can also pledge their tokens for a portion of the loan and redemption fees charged by the platform. These fees are primarily allocated to the pledge contract and accrue to ETH and LUSD.
As a token, LUSD is pegged to the US dollar, which means that its value is very close to the normal value of the dollar. Because of this value, token holders can exchange their LUSD tokens directly into fiat currency or other token pairs, such as USDT.
Regarding governance, Liquity forgoes the traditional governance framework relying on humans voting on the protocol's development. In Liquity, all parameters traditionally up for vote are either algorithmically controlled by the protocol or preset. Taking such a laissez-faire approach to governance reportedly allows users to have a predictable experience borrowing against their ETH.