Liquity USD (LUSD)
Liquity USD (LUSD) is a USD-pegged stablecoin used in the Liquity protocol, which operates as a decentralized borrowing platform. LUSD is an ERC-20 token that facilitates loans within liquidity agreements. To participate, users must deposit a minimum amount of ETH to access the LUSD network, maintaining a 110% collateral rate. The protocol, deployed on the Ethereum Mainnet, utilizes a Proof-of-Stake consensus mechanism.
Users can deposit LUSD into a stable pool to earn rewards in ETH and LQTY, the protocol's secondary token. As LUSD is used in settlement transactions, its balance in the stabilization pool decreases, rewarding users with a share of settled ETH and LQTY. LQTY token holders can also pledge their tokens to earn a portion of the platform's loan and redemption fees, which are distributed in ETH and LUSD.
| Ticker | LUSD |
| Category | Stablecoins |
| Website | https://www.liquity.org/ |
| @LiquityProtocol | |
| https://www.reddit.com/r/Liquity/ | |
| Contract Addresses | |
|---|---|
| ethereum | 0x5f...a0 Copied! |
| base | 0x36...c6Copied! |
| optimistic-ethereum | 0xc4...19Copied! |
| zksync | 0x50...15Copied! |
| arbitrum-one | 0x93...5bCopied! |
| polygon-pos | 0x23...c7Copied! |
LUSD is pegged to the US dollar, allowing holders to exchange it directly for fiat currency or other tokens like USDT.
Redemption mechanism
LUSD is a fully redeemable stablecoin, allowing holders to trade their LUSD for ETH collateral at face value. This redemption offers a price floor for LUSD, ensuring it maintains parity with the US dollar. Redeeming 100 LUSD provides $100 worth of ETH collateral, less the redemption fee. This mechanism encourages holders to redeem LUSD when it trades below $1, converting it into ETH at par value, and contracts the total LUSD supply while adjusting the base rate.
LUSD supply shrinkage
Liquity's Troves are collateralized debt positions enabling users to borrow LUSD against their ETH deposits. When LUSD's price drops, the peg stability mechanism allows users to redeem 1 LUSD for $1 worth of ETH from the lowest collateralized troves. On October 24, 2023, over 4.13 million LUSD tokens were exchanged for ETH. This increase in redemptions led to a closure of troves, with users exploring other lending platforms. In September 2023, the average collateral ratio of redeemed troves was 181%, with arbitrage opportunities affecting LUSD's supply.
LUSD and LQTY bridging
LUSD is available on Optimism, allowing users to bridge it to layer 2. This process involves burning an LUSD-IOU on the target chain to recover the base LUSD on the mainnet, with a one-week delay. The bridging aims to democratize LUSD access on layer 2, making it more accessible on local decentralized exchanges. LQTY follows a similar bridging process.
Partnerships
LUSD x Maverick
The first three liquidity pools involving LUSD on Maverick are:
- LUSD / wstETH pool
- LUSD / ETH pool
- LUSD / USDC pool
Maverick offers customizable liquidity structures for LUSD/ETH pools, enhancing liquidity efficiency. There is also a collaboration with Lido Finance for LUSD/wstETH pools.
LUSD x GearBox
GearBox, launched on October 31, 2022, uses its V2 protocol to leverage LUSD/3CRV Curve/Convex yields. Users can supply tokens used by leveragers, earning native yields and GEAR tokens, and provide liquidity for LUSD/3CRV leveraging.
LUSD x Synthetix
In November 2021, Synthetix integrated LUSD to support sUSD's peg on Layer 2.
LUSD x OHM
The LUSD/OHM Sushiswap pool, incentivized for co-liquidity, went live on October 6, 2021, offering liquidity mining rewards.