<\/p>\n
The team behind decentralized stablecoin protocol Liquity lifted the curtain on a long-awaited sequel to its ether-backed LUSD on Monday, this time using staked ether as collateral and a new reserve mechanism.<\/p>\n
In the current version, borrowers use ether as collateral to mint LUSD at a 0% interest rate, after a one-time borrowing fee \u2014 currently 0.5%. The team made the new version public at EthCC in Paris.<\/p>\n
Ever since liquid staked ether gained traction, Liquity community members in the project’s Discord have speculated about a new version of the system to take advantage of staking yields.<\/p>\n
LUSD is small by stablecoin standards, with a supply that peaked at $1.5 billion in May 2021, and now sits at under $300 million. That’s partly a result of its design.<\/p>\n
Just as there’s a blockchain trilemma<\/a>there’s a trilemma specific to stablecoins comprising decentralization, stability and scalability.<\/p>\n LUSD is decentralized \u2014 its smart contracts are immutable \u2014 and stable, but not scalable because it relies on overcollateralization of ether, currently at 260% of LUSD.<\/p>\n These properties have earned it an \u201cA\u201d safety rating from Bluechip.org, a new nonprofit organization dedicated to evaluating stablecoins, according to Garett Jones, co-founder and chief economist.<\/p>\n \u201cWe’re basically doing the equivalent of a value at risk assessment,\u201d Jones told Blockworks. \u201cEven in the worst 30-day period that Ethereum has had since inception, [Liquity\u2019s collateralization] would still be sufficient. And it’s not susceptible to governance attacks that have haunted some stablecoin efforts<\/a>,<\/p>\n The problem for scaling LUSD is that ether is a productive asset \u2014 with demand from staking surging<\/a> \u2014 and locking up 200% percent to borrow a stablecoin is not very capital efficient. But if you could power your borrowing with a yield-generating asset, that’s another story.<\/p>\n Until recently, the team has been coy about their plans for a new version.<\/p>\n And it would have to be completely new; Like Uniswap, Liquity’s smart contracts cannot be upgraded. But unlike virtually all DeFi protocols, Liquity doesn’t have its own front-end website, preferring to outsource that function to the community. <\/p>\n The main impediment to a new version is the relative immaturity \u2014 and therefore increased risks \u2014 of the various flavors of liquid staking tokens (LSTs) that could conceivably be employed.<\/p>\n Maintaining flexibility by launching an upgradeable version of Liquity would run counter to its decentralized ethos.<\/p>\n It has been clear for some time that there was going to be market demand for such a product, however.<\/p>\n By the time of Ethereum’s Shapella upgrade<\/a>which enabled withdrawals and significantly de-risked the use of LSTs, the team was well aware that multiple projects were working on a Liquidity-like product using Lido’s stETH and other LSTs.<\/p>\n Raft Finance, announced<\/a> its intention to do so on March 20, and Gravity<\/a> and Libra<\/a> soon followed<\/a> in April \u2014 all forked from Liquity’s open-source code, with none connected to the Liquity team.<\/p>\n Collectively, the upstarts have minted about $243 million in stablecoins, R<\/a>, Grai<\/a> and USD<\/a> on Ethereum, although these have tended to drift more than 1% away from their $1 peg thus far.<\/p>\n One challenge to stablecoin stability is maintaining sufficient liquidity on decentralized and centralized exchanges, said Robert Lauko, Liquity’s founder, in his Paris presentation<\/a>,<\/p>\n \u201cNormally you would need to pay out a lot of incentives to have liquid secondary markets,\u201d he said. That’s why Liquity intends to use a newer approach to collateral backing, which Lauko calls “a decentralized reserve.”<\/p>\n The design has yet to be finalized, but the basic idea is to combine a delta-neutral hedging mechanism with an attractive leveraged product that includes some principal protection to remove the risk of liquidation.<\/p>\n The protocol will both act as its own market maker and insurance fund, while protecting itself from bank runs, Lauko said.<\/p>\n \u201cWe are now in a phase where we want to open up our research\u2026we would love to hear your insights, criticisms, reactions about the new project and product and also see whether we can take it to the next level.\u201d<\/p>\n The new protocol \u2014 which will likely receive its own brand name \u2014 is expected to go live in 2024.<\/p>\n Get the day’s top crypto news and insights delivered to your email every evening. Subscribe to Blockworks’ free newsletter<\/a> now.<\/strong><\/p>\n Want alpha sent directly to your inbox? Get degen trade ideas, governance updates, token performance, can’t-miss tweets and more from Blockworks Research’s Daily Debrief<\/a>,<\/strong><\/p>\n Can’t wait? Get our news the fastest way possible. Join us on Telegram<\/a> and follow us on google news<\/a>,<\/strong><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":" The team behind decentralized stablecoin protocol Liquity lifted the curtain on a long-awaited sequel to its ether-backed LUSD on Monday, this time using staked ether as collateral and a new reserve mechanism. In the current version, borrowers use ether as collateral to mint LUSD at a 0% interest rate, after a one-time borrowing fee \u2014 […]<\/p>\n","protected":false},"author":2,"featured_media":124339,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[230,225,221,227,226,228,229,60,223,224,222],"class_list":["post-124338","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cryptocurrency","tag-brave","tag-coinbase","tag-crypto","tag-decentralised","tag-decentralized","tag-decentralized-exchange","tag-erc-20","tag-featured","tag-meme-coin","tag-robinhood","tag-solana"],"_links":{"self":[{"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/posts\/124338","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/comments?post=124338"}],"version-history":[{"count":1,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/posts\/124338\/revisions"}],"predecessor-version":[{"id":124340,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/posts\/124338\/revisions\/124340"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/media\/124339"}],"wp:attachment":[{"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/media?parent=124338"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/categories?post=124338"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/tags?post=124338"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}The rise of LST-based forks<\/h2>\n
The decentralized reserve<\/h2>\n
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