Liquity is an interest-free borrowing protocol on the ETH network, with its own native stablecoin LUSD.
In this Liquity twitter space hosted by team member Michael Svoboda, protocol founder Robert Lauko discusses the latest with crypto personalities Barry Fried, Erik Voorhees, and Mariano.
Read our notes to get a brief overview of what is in store for Liquity, the threat of censorship to DeFi, the state of stablecoins, and more.
What is your Background in DeFi and how did Liquity Catch your Interest?
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Barry Fried
● Got into the space less than a year ago.
● Deep into different option plays and how to potentially bring options on-chain.
● Overall, a degen who also enjoys Liquity.
● Likes Liquity because of its simplicity and robustness.
Mariano
● He joined Maker in 2016 and left in 2020.
● Currently not working on any project.
● He began using Liquity on day 1 because their whitepaper had some very unique ideas.
● Mariano initially didn’t understand the redemption mechanism and it also sparked his interest.
Robert
● Started looking into DeFi in 2019.
● Existing projects like Maker and Compound weren’t as efficient in liquidating positions of borrowers as they could be.
● He started Liquity by making borrowing more efficient. This means that you would need less collateral and your position can be liquidated very quickly if needed.
● Later added other features including being fully autonomous and interest free.
Erik
● Founder of Shapeshift.
● Huge fan of Thorchain, a project that is not native to ETH EVM but is allowing cross-chain transactions.
● Learned about Liquity from his co-founder at Shapeshift - John.
● Initially, he was skeptical about the fact that there is no interest rate on Liquity.
● He is a user of Liquity because it’s a very competitive product.
What are the Things you Value About Liquity and What Should Be Improved?
Mariano
● It’s a single transaction for the full borrowing cycle - opening a Trove (where the borrowing process occurs), putting in some collateral, and receiving LUSD. No need to use proxies.
● To repay the debt you don’t have to sign an approved transaction, because LUSD knows that it’s authorized to repay.
● The system is immutable because there is no governance.
● The decentralized front-end is one of the highlights.
● One thing that he misses is letting other wallets pay your debt or add collateral.
● Still not sold on Liquity’s 0.5% loan origination fee.
Erik
● Erik’s favorite part of Liquity is the time it saves because he can take out a loan in 30 sec.
● Also appreciates the simplicity and the lack of any interest rate.
● Would like to see more tools and front-end work.
● He would also like to see the protocol on other blockchains.
Barry
● Simple system with no governance.
● The overall liquidity of LUSD in DeFi is a bit difficult and that’s the biggest issue.
● LQTY emissions are slowing, and we’ll see how the LUSD supply will react to that.
How Did Liquity Evolve?
● The peg issue was expected. There is a hard price floor and a hard price saving between 1 and 1.10 but in between the price stability mechanisms are softer.
● Surprised by how big the project became, it reached 4.5 billion in TVL.
● Real-world usage is positive, for example when purchasing a car.
Will There Be an Impact From the Merge on Liquity?
● For the official ETH we expect no impact as we are not relying on some of the time-critical aspects of the blockchain that could interfere.
● PoW fork could have an interesting impact, as anything is possible there.
How do you Make Sure a System is Safe When Taking your First Loan?
Erik
● My strategy is to use any new project with only a small amount of money and learn about it.
● Trust in DeFi is earned by time in the market, not by audits or what smart people say.
Mariano
● Opened up Trove on the first day.
● Slowly put more money in the stability pool.
● Was really sold when ETH crashed from approx. 4,000 to 1,700 and everything worked really well.
Barry
● Barry was researching the protocol for a thread and was learning more and more about the system.
● Most trust was gained by surviving drawdowns without any harm to the protocol.
How Can We Increase the Adoption of Decentralized Stablecoins?
● ETH is the best collateral for the ETH blockchain but it could become even better collateral if it could become a little less volatile.
● There is a tradeoff between being scalable and sticking to ETH as the sole collateral.
● If ETH grows, Liquity will grow and LUSD will grow with it. The exposure to L2s will help with the overall liquidity in the system because it’s cheaper to take out loans there.
How Do You Choose Which Stablecoin to Use?
● A world with lots of different options is preferable.
● After Tornado Cash people have been reminded that USDC can be frozen by the central party behind it, Circle.
● Governments will be using their power in this space more and more.
● One reason why USDC is the most liquid stablecoin in the DeFi space is just a habit that has been built. Changing habits to use other stablecoins would be positive, though it may be difficult to get there.
● When people pull a loan out of Liquity, they’re not trying to get LUSD, they’re trying to get USDC. We should try to see LUSD as potentially the product, the stablecoin.
What Are the Things that We Shouldn’t Compromise on in the DeFi Space?
● Immutability is most important. Everything that influences Liquity to implementing more restrictions is deal breaker.
● Keeping security paramount.
● Anything beyond this is alright to experiment with.
How do you See DeFi Evolving?
● We need to remember that decentralization is at the core of everything that we do.
● It’s incumbent on anyone that cares about DeFi and who’s building within it to make sure that they amplify the message of honesty and integrity and transparency and immutability that DeFi provides.
● Erik is not bullish on DeFi bringing immutability to real-world assets because the majority of assets in the future are going to be digital assets, not real-world assets.
Can You Give Some Alpha on What You’re Working on?
Robert
● He is exploring some potential ways to integrate something which is still reliant on ETH as collateral, but is able to grow indefinitely as demand for stable coins grows.
● Chicken bonds - it’s a POL (Protocol Owned Liquidity) system that aims to acquire protocol liquidity like LUSD and this would be used to be shifted between the stability pool of Liquity and the curve pool to make the pack tighter.
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