What is Liquity Protocol LQTY Tokens
Rancakmedia.co.idm – Liquity Protocol LQTY token is an Ethereum token that supports the Liquity protocol, a decentralized lending platform for 0% interest-bearing loans using ETH as collateral.
Loans are paid out in a stablecoin called LUSD, and LQTY holders can stake their tokens to earn a portion of the fees generated by opening and closing loans.
Lusd, the protocol's native stablecoin tied to the US dollar, is used to issue interest-free liquidity. Lusd differs from other decentralized stablecoins in that it can be exchanged for the underlying collateral for its full face value.
Like the current stablecoin system, liquidity allows users to issue tokens in a self-service manner; however, other systems have sophisticated governance procedures required to maintain the usd peg by changing fees or interest rates.
Liquidity replaces requirements for human interest and interaction with algorithmically calculated redemptions and loan issuance costs to maintain its currency.
Both fees start at zero percent and increase in proportion to the amount of money exchanged, but they tend to return to zero when exchange activity is minimal.
First, borrowers create private liquidity “treasures” by securing ether in smart contracts. Only a collateral ratio of 110 percent is required for each treasure, which is the lowest in the defi industry.
The borrower can then issue lusd tokens, which are counted as debt against collateral. Borrowers can earn up to 90.09 lusd for every ether dollar.
When borrowers are ready to recover their collateral, they simply return the lusd to the contract to repay their loan and release their collateral. Lower collateral requirements help improve capital efficiency.
Risk-averse borrowers may choose to keep their collateral assets ratio at more than 300 percent at all times to withstand a sudden drop in collateral prices of up to 50 percent if the liquidation ratio is set to 150 percent, for example.
Borrowers may feel as safe with a collateral ratio of 220 percent if liquidation only occurs below the 110 percent ratio. A more liquid ether market is made possible by increased capital efficiency, and a better ROI makes it easier to integrate with other DEFI initiatives.
Borrowers with high collateral and depositors in the stability pool help keep the system stable. They are paid for their responsibilities by obtaining the added benefit of collateral from liquidated assets.
Moreover, depositors will get liquidity protocol tokens in return from the front end. Lqty can be staked to get a proportion of protocol revenue arising from issuance and exchange fees.
Very Efficient Capital Through Liquity Protoco LQTY
the innovative liquidation mechanism allows the token liquidity protocol to outperform its competitors in terms of efficiency and resilience in the face of market price fluctuations.
To avoid the collateral-treasure ratio from falling below 100%, the protocol requires liquidation to pay outstanding debts.
Stability pools are the main mechanism of liquity to instantly absorb assets with insufficient collateral. Users who deposit lusd in exchange for future guarantees of liquidated assets keep it running.
When the treasure falls below the required collateral ratio of 110 percent, the system liquidates the debt by burning the same amount of lusd tokens held in the stability pool.
This is in contrast to current platforms which auction collateral in a protracted process, facing a severe market scenario and subsequent price drops.
All collateral for each liquidated asset is sent to the stability pool and divided equally among all depositors in return for the proceeds of burning proceeds from the stability pool.
Depositors should benefit from this process because collateral is almost always worth more (in usd) than the lusd tokens burned to balance the debt. A guarantee ratio of less than 110 percent triggers liquidation, while a probability greater than 100 percent increases the probability that liquidation will occur.
Stability pool depositors get $109 worth of eth if assets with $109 in eth and 100 lusd debt are liquidated. This means the “liquidation penalty” during typical system operation is no more than 10 percent, much lower than other competitors.
The second step of liquidation occurs if the stability pool loses all the proceeds, in which case the system will redistribute any assets that fail to pay according to the collateral ratio of each existing assets.
This ensures that the system does not cause liquidation cascades by guaranteeing that high-collateral troves get more debt and collateral from liquidating positions than low-collateral troves.
By allocating the riskiest positions to the safest and changing the incentive structure in times of low collateral, liquidity quickly stabilizes itself through an immediate feedback loop.
The system has recovery mode as a last resort. Recovery mode is triggered if the total system guarantee drops below the critical guarantee ratio, set to 150 percent. When this occurs, the assets most at risk are liquidated (even if they are guaranteed by more than 110 percent) until the critical collateral ratio requirement is met.
As a self-denying deterrent, recovery mode actively directs the system never to reach it. These safeguards ensure that the system's total guarantee ratio is maintained at a healthy level.