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DeFi Lender Liquity Unveils New Stablecoin With User-Set Borrowing Rates in White Paper

May 13, 2024
    Liquity’s upgraded protocol aims to take on the increasing competition for DeFi yields, with plans to go live in the third quarter.The new stablecoin, BOLD, will coexist with Liquity’s LUSD, adding liquid staking ETH derivatives as collateral assets to provide liquidity or leverage for investors.
As a crypto investor with some experience in DeFi, I’m excited about Liquity’s upcoming upgrade and the introduction of their new stablecoin, BOLD. The ability to offer user-set interest rates for loans is a game-changer in DeFi, as it addresses the current limitations of human-governed adjustments or lack of targeted interest payments in existing protocols.As a DeFi analyst, I’m excited to share that Liquity (LQTY), a decentralized finance lending platform, is planning an upgrade with an innovative feature: an overcollateralized stablecoin. This stablecoin will be backed by liquid-staking tokens of ethereum (ETH) instead of traditional collateral. Moreover, users will have the unique ability to set their own interest rates for loans. In DeFi circles, this is a groundbreaking development.

The white paper published Tuesday argues that existing methods for managing interest rates in protocols are sluggish and may lead to misalignments, or they lack a mechanism for utilizing interest payments to stimulate demand for their stablecoins. Liquity V2 aims to address this issue.

As a crypto investor, I’m excited about the upcoming changes in the third quarter of this year. The new version brings fresh yield-generating strategies and DeFi-native stablecoins that have been instrumental in lifting investment returns from the crypto winter of 2022 and 2023. For instance, Aave and Curve introduced their stablecoins last year, while USDe from Ethena, which generates yield by harvesting bitcoin (BTC) and ETH futures premiums using a “carry trade,” drew in an impressive $2.3 billion in deposits.

As a financial analyst, I would describe Liquity as a platform that provides 0% loans using overcollateralized LUSD stablecoins for Ethereum depositors. In return, users pay a one-time fee. During the crypto market boom in May 2021, the total value locked (TVL) on this platform reached an impressive $4 billion mark. However, as of now, the TVL has significantly decreased to approximately $700 million, based on DefiLlama’s data.

As a researcher studying the latest developments in stablecoins, I’m excited to share that there’s a new addition to the market called BOLD. This coin will operate alongside LUSD and offers an innovative way for borrowers to secure loans using ETH as collateral along with liquid staked ETH derivatives. The unique feature of this system is that borrowers can set their preferred interest rates, providing them with greater flexibility. Moreover, most of the revenue generated from borrowing fees will be channeled into the stability pool and secondary markets, creating incentives within the protocol.

Allowing borrowers to determine their own loan rates serves the purpose of aligning incentives. In other words, the more a borrower is ready to pay, the greater revenue they generate for the protocol to distribute among BOLD token holders in the stability and liquidity pools.

As a researcher exploring the benefits of LUSD, I’ve noticed its strengths lie in its decentralized features. However, it lacks the inherent agility to respond to shifting market conditions such as rising or falling interest rates. During periods of positive interest rates, this shortcoming calls for a consistent yield source for the stablecoin. And that’s where BOLD comes in, supplying the required yield.

Liquity plans to go live with the protocol in late third quarter of this year, Lekhak said.

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2024-05-14 19:06