According to CoinDesk, Liquity, a decentralized finance (DeFi) lending platform, is planning an upgrade that includes an overcollateralized stablecoin and the introduction of user-set interest rates for loans. This is a first in the DeFi sector. The new stablecoin, BOLD, will coexist with Liquity's existing LUSD, and will use liquid staking tokens of ether as backing assets.
The upgrade is set to go live in the third quarter of this year. The introduction of BOLD is aimed at providing liquidity or leverage for investors. The new stablecoin will allow borrowers to take out loans by depositing ETH and liquid staking ETH derivatives as collateral, while also setting their preferred interest rate. The revenue from borrowing fees will primarily be paid into the stability pool and secondary markets incentivized by the protocol.
The concept behind allowing borrowers to set the loan rates is to align incentives. The more borrowers are willing to pay, the more revenue they contribute to the protocol, which will then be paid out to BOLD holders in stability and liquidity pools.
Samrat Lekhak, head of business development and communications at Liquity, explained that while LUSD is appreciated for its decentralized capabilities, it lacks the flexibility to adapt to changing market environments like rising or falling interest rates. BOLD is designed to provide a continuous yield source for the stablecoin in times of positive interest rates.
Liquity is known for offering 0% loans in its overcollateralized LUSD stablecoins for users depositing ETH in the protocol, while charging a one-time fee. As of May 2021, the total value locked on the protocol surpassed $4 billion. Currently, it stands at about $700 million, according to DefiLlama data.