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Liquity to introduce LST support and dynamic user-set interest rates in bid to drive growth.<\/p>\n
Liquity, the project behind the LUSD decentralized stablecoin, will launch a newly redesigned protocol this year.<\/p>\n
On Feb. 15, Liquity\u00a0announced<\/a>\u00a0plans to launch a revamped collateralized debt protocol (CDP<\/a>) seeking to address the shortcomings encountered by its current offering in recent years.<\/p>\n Liquity\u2019s new protocol will introduce several new features, including support for liquid staking tokens (LSTs) as collateral, and new mechanisms designed to maintain LUSD\u2019s peg to the dollar. Liquity will also debut dynamic \u201cuser-set interest rates\u201d alongside a new liquidation system that will prioritize forced redemptions for users paying lower fees.<\/p>\n \u201cWe are strongly convinced that the introduction of this new DeFi primitive, centered on user-driven interest rates, not only enhances its direct appeal to users but also opens doors for developers and protocols,\u201d Liquity said. \u201cBy choosing higher interest rates, borrowers can reduce the likelihood of being affected by redemptions, thereby aligning their individual incentives with the stablecoin peg dynamics of the system.\u201d<\/p>\n <\/p>\n Liquity said that users can protect themselves from liquidation redemptions in the event of heavy selling pressure by increasing borrowing rates. \u201cThe resulting higher fee payments serve as direct revenue to the Stability Pool, driving demand for the stablecoin which subsequently helps the stablecoin peg and lowers redemption risk,\u201d it added.<\/p>\n Liquity said it aims to launch the protocol sometime around late Q3 2024.<\/p>\n Liquity said its \u201csteadfast commitment\u201d to decentralization has caused issues for the protocol in recent years.<\/p>\n Liquity has been unable to adapt to the evolving macroeconomic landscape driven by interest rate fluctuations, with the team concluding that its algorithmic rate mechanism has not remained competitive within the current economic environment. <\/p>\n Liquity also said its market share has declined as rival protocols introduced support for LSTs, which allow CDP users to earn staking rewards on tokens representing ETH deposits.<\/p>\n \u201cThe primary challenge has transitioned from scaling borrowing demand\u2026 in an environment with rising interest rates,\u201d Liquity said. \u201cThis\u2026 has illuminated areas where our current system can improve, and highlighted opportunities for innovation within our codebase.\u201d<\/p>\n <\/p>\nLiquity’s decline<\/h2>\n
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