Liquity to introduce LST help and dynamic user-set rates of interest in bid to drive progress.
Liquity, the challenge behind the LUSD decentralized stablecoin, will launch a newly redesigned protocol this yr.
On Feb. 15, Liquity introduced plans to launch a revamped collateralized debt protocol (CDP) searching for to deal with the shortcomings encountered by its present providing lately.
Liquity’s new protocol will introduce a number of new options, together with help for liquid staking tokens (LSTs) as collateral, and new mechanisms designed to keep up LUSD’s peg to the greenback. Liquity can even debut dynamic “user-set rates of interest” alongside a brand new liquidation system that can prioritize pressured redemptions for customers paying decrease charges.
“We’re strongly satisfied that the introduction of this new DeFi primitive, centered on user-driven rates of interest, not solely enhances its direct attraction to customers but additionally opens doorways for builders and protocols,” Liquity stated. “By selecting greater rates of interest, debtors can scale back the chance of being affected by redemptions, thereby aligning their particular person incentives with the stablecoin peg dynamics of the system.”
Liquity stated that customers can defend themselves from liquidation redemptions within the occasion of heavy promoting strain by rising borrowing charges. “The ensuing greater price funds function direct income to the Stability Pool, driving demand for the stablecoin which subsequently helps the stablecoin peg and lowers redemption threat,” it added.
Liquity stated it goals to launch the protocol someday round late Q3 2024.
Liquity’s decline
Liquity stated its “steadfast dedication” to decentralization has brought on points for the protocol lately.
Liquity has been unable to adapt to the evolving macroeconomic panorama pushed by rate of interest fluctuations, with the workforce concluding that its algorithmic price mechanism has not remained aggressive inside the present financial setting.
Liquity additionally stated its market share has declined as rival protocols launched help for LSTs, which permit CDP customers to earn staking rewards on tokens representing ETH deposits.
“The first problem has transitioned from scaling borrowing demand… in an setting with rising rates of interest,” Liquity stated. “This… has illuminated areas the place our present system can enhance, and highlighted alternatives for innovation inside our codebase.”
Whereas customers have taken out greater than $4.5B price of loans from Liquity since its launch, LUSD’s market cap has declined all through the vast majority of the protocol’s lifespan.
Launched in April 2021, LUSD sought to deal with most of the criticisms dealing with the long-standing incumbent and pioneering CDP, MakerDAO, which had alienated some customers by abandoning its authentic ETH-only backing in favor of supporting an rising variety of extremely centralized property, akin to USDC.
Liquity sought to deal with this by launching a CDP completely supporting ETH and decentralizing the protocol to stop main adjustments from being made to the protocol sooner or later.
Simply six weeks after launching, LUSD’s market cap had rocketed to an all-time excessive of almost $1.56B, earlier than slumping to $445.5M by August 2021, in line with CoinGecko. Its market cap then ramped as much as $934B as of Nov. 30, 2021, however had steadily fallen to $160M as of June 2022.
LUSD’s capitalization once more ramped up alongside rising ETH costs in 2023, however has fallen by half after posting a neighborhood excessive of $300M on Aug. 30, 2023 — at present sitting at $152M.
