Liquity USD is a stablecoin, meaning the Liquity USD price is pegged against the US Dollar. It’s a blockchain lending-based platform that allows users to borrow crypto through Liquity pools with the stablecoin. Before users can access the LUSD network, they need a certain amount of Ethereum to act as collateral.
For Liquity’s platform to make money, they will charge one-time issuance fees for when people take out a loan and when they redeem their LUSD for ETH.
How Does Liquity USD (LUSD) Work?
The way it works is simple; Liquity will allow you, as the user, to borrow money to stake your ETH as collateral. You don’t have to sell your ETH, and they keep it safe for you until you make the required repayment, at which stage you will receive your ETH back. Liquity only allows ETH to be used as collateral, and they don’t accept any other coin on the platform.
The rate at which users will experience collateral is 110% at face value. Essentially, you will get a loan at a 0% interest against your ETH token, which you used as collateral. Borrowing crypto is not the only benefit of this platform. It also allows you to deposit LUSD into stability pools, which will enable you to qualify for earning rewards such as LQTY and ETH.
As users repay their debts, the stability pool’s balance can decline over time. What the platform will do as this happens is to reward users with a portion of the settled LQTY and ETH. Another remarkable aspect LQTY users can enjoy is the ability to stake their coins to receive a percentage of the loans and redeem some fees charged on the platform.
The fees we’re talking about are used for the staking contracts, which convert to ETH and LUSD. The platform hopes the peg with the US Dollar will always be able to provide ETH worth $1 to back the loans in Liquity.
- Trove: This allows users to manage their debt; it’s called a Collateral Debt Position. They can take out more money by adding to their already collateral balance, or they can repay the debt and, in that way, qualify for a higher amount. To close off the Trove, you must pay off the existing debt.
- Stability pool: This helps keep the entire Liquity pool stable. How they do this is through the repayment of the Trove.
- Stability provider: They are the users who add LUSD tokens to the stability pool. For this, they will receive a reward of LQTY tokens. They are in a safe position when the market reaches a volatile state.
- Frontend operators: Those who have frontend knowledge can use that knowledge to sign up for the Frontend SDK, which will allow them to earn rewards from users who deposit money into the stability pool. The frontend will generate revenue, which will grow proportionally with how much LUSD is deposited into the stability pool.
How Protected is Liquity USD (LUSD)?
They designed Liquity USD according to the ERC-20 token specifications. This means they use the same security protocols as the Ethereum network. There are protocols in place as nodes to protect the network from any fraudulent activity that might take place.
Ethereum has a solid proof-of-stake consensus algorithm, allowing them to achieve the level of security they currently have. For this reason, ETH is the perfect collateral to use when taking out a LUSD loan.
The Ethereum nodes will validate the transactions before they can add them to the blockchain. The nodes used here have to be of the highest stakes making them the decisive party on the platform, making the platform secure because of their stance on security.
What Is Liquity USD (LUSD) Used For?
Liquity USD is basically used as a stablecoin for users to borrow. Where the real magic comes from is the entire network and platform, and this is because the algorithm used to govern the rate of token redemption volume has given this token an excellent base rate.
This in turn means that you don’t have to pay any rates. The platform has seen exceptional success in closing the settlement gap in the blockchain industry with its loan services.
Where To Buy Liquity USD (LUSD)
You can buy or trade LUSD on three exchanges:
There are two methods you can use to buy this token, you can use your credit or debit card, or you can use your cryptocurrency.
When buying LUSD with your credit or debit card, you’ll need to sign up to any of the three exchanges mentioned above. Next, you’d like to choose the token you want to buy, in this case, LUSD. After deciding on the amount you wish to purchase, you’ll be asked to enter your card details.
And there you go, you have your LUSD. Remember that when you buy tokens using your credit or debit card, go through a KYC (know your customer) process, meaning you will give up your anonymity.
If you want to keep your anonymity, you can opt for the other route: buying LUSD with cryptocurrency. For that, you’ll need to have a digital wallet available. Trust Wallet is a good choice because of the simplicity of the user interface.
You’ll still need to use your credit or debit card to purchase Bitcoin or Ethereum on the platform. The reason for those two is that all exchanges, no matter how small, accept Bitcoin or Ethereum because of their firm stance in the crypto world.
After your purchase, you must enter one of the three above exchanges and connect your wallet to the exchange. Once connected, you can swap your Bitcoin or Ethereum for LUSD.
What Are The Risks Of Buying Liquity USD (LUSD) As An Investment?
Even though the future of cryptocurrency looks bright, there will always be risks involved. It’s not just the crypto market that experiences threats. Every market has some level of risk tied to it. The problem people see with cryptocurrency is because the time they’ve been in the market is much less than the NASDAQ 100, for example.
Even though LUSD is only a stablecoin, there are various ways you can invest in this token to make it count in your favor:
- Conduct a thorough risk evaluation, which will give you better insight into how it will affect your overall investment portfolio.
- With the LUSD being a stablecoin, your need to worry about volatility is kept at a minimum.
- · You should still monitor it because even though it’s kept at $1 when it drops below that, that’s when you should take advantage.
- Always invest with caution. Especially true when you want to keep it on a short-term basis.
- It’s recommended to keep your portfolio diversified with various DeFi coins, which will benefit you.
Note: Nothing in this article is to be seen as financial advice and is for educational purposes only. If you want to invest, speak to a registered financial advisor on how to go about this matter.
About Liquity USD (LUSD)
Who Founded Liquity USD (LUSD)
Rick Pardoe and Robert Laulo created Liquity USD as a joint project. They are the company’s founders, but as the years went on, they started adding several talented professionals to the platform.
Incorporated in 2020, the company managed to initially raise an impressive $2.4M in seed funding.
How Many Liquity USD (LUSD) Tokens Are There?
With LUSD, there is a maximum supply of tokens tied to 100.000.00 LUSD. The entire network with the total amount sees a circulating supply of 719.446.095 LUSD.
What is the market cap of Liquity USD (LUSD)
Liquity USD is currently, as of writing this article, standing on a total market cap of $179,457,037, with a trading volume of $2,474,938.
Biggest Competitors Of Liquity USD (LUSD)
For stablecoins, it can be difficult to say whether there are any competitors. It’s because they are all a USD pegged stablecoin, meaning no stablecoin has more value than the next. It’s not like Bitcoins’ main competitor is Ethereum.
Liquity has to continue growing within the shared Liquity pools and collateral schemes to stay strong with the US Dollar.
Pros And Cons Of Liquity USD (LUSD)
With any decentralized borrowing protocol, there will be various pros and cons. One of the first and most prominent pros of LUSD tokens is that you have a minimum collateral ratio of 110%. You’ll remember we mentioned that earlier in the article. With this minimum collateral ratio, you get a wonderful rate for your underlying collateral of ETH.
Unfortunately, you won’t be able to deposit LUSD tokens as collateral. You need to, however, use that as redemption fees to get your ETH back for your Liquity loans.
- It was listed on Coinbase for those die-hard fans who don’t trust any other platform.
- You can rest easy knowing that they are entirely decentralized.
- A lot of investors are currently investing in the token and platform.
- Even though many people are investing, the coin is not yet fully developed
- There have been some issues with the syncing between ledgers.
Now you’ve got a complete insight into Liquity USD. With the popularity increasing on platforms offering this service, Liquity USD has to be a crypto to look out for. The simplistic approach to only using ETH as collateral and users being able to get rewarded for their input could lead to the growth of Liquity.