- 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.
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 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.
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