A thread on the importance of liquity and LUSD as a decentralized Eth-backed stablecoin that is safe from censorship and seizure attempts that threatens USDC and partially USDC-backed stablecoins like DAI ๐งต
The purpose of this thread is to discuss what makes LUSD one of the most secure and robust decentralized stablecoins against depeg and censorship/seizure attempts.
Liquity allows users to borrow money using ETH collateral to draw loans in LUSD (the platform's native stablecoin)
Liquity allows users to borrow money using ETH collateral to draw loans in LUSD (the platform's native stablecoin)
Similar to MakerDao, it uses a dual token system. The difference is that it does not have a governance system. Instead, LQTY is used primarily for protocol revenue accrual.
As part of its incentive mechanism, liquity rewards participants with the protocol's support token LQTY in exchange for running the front-end. By doing so, blocking users from the front-end will be largely irrelevant.
Using LQTY tokens, you can get access to a portion of the protocol revenue, which is made up of borrowing fees and redemption fees.
In Liquity, there is no governance, the protocol cannot be altered and it relies on its original design to function. This completely eliminates the possibility of any kind of governance attack.
Furthermore, since the only collateral for minting LUSD is ETH, it's impossible to add any high-risk or freezable assets like USDC to the protocol as collateral options
Liquity has three protective barriers in place to keep the LUSD peg in check:
Stability pool
Redistrubtion mechanism
Recovery mode
Stability pool
Redistrubtion mechanism
Recovery mode
The stability pool absorbs the initial wave of liquidations by allowing LUSD owners to use their tokens to share the surplus of liquidated assets ( usaully around 8-9%). In this way, there is always a motivation to absorb liquidations by removing LUSD from circulation.
redistribution mechanism, used to redistribute assets from undercollateralized positions to overcollateralized ones, keeping the protocol afloat (only after the stability pool is exhausted).the redistrubtion is proportional to pervent cascading liqudations.
When all else fails and the collateral ratio (TCR) falls below 150%, Liquity goes into recovery mode, allowing liquidation of positions below the TCR.
However, the liquidation amount is capped at 110% to prevent borrowers from losing excessive amounts of ETH,enabling reclamation
However, the liquidation amount is capped at 110% to prevent borrowers from losing excessive amounts of ETH,enabling reclamation
some useful links :
Gauntlet's extensive risk analysis on liquity:
liquity-report.gauntlet.network
An interesting video about liquity
youtu.be
Tokenterminal dashboard for liquity:
tokenterminal.com
liquity report q1-2022
liquity.org
Gauntlet's extensive risk analysis on liquity:
liquity-report.gauntlet.network
An interesting video about liquity
youtu.be
Tokenterminal dashboard for liquity:
tokenterminal.com
liquity report q1-2022
liquity.org
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@0xwhanod) for more threads.
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