Liquity Land — The Most Simple Frontend for Liquity Protocol
DeFi enthusiasts and Ethereum ecosystem believers throughout the whole world finally have an opportunity to use their ETH as a collateral in interest free loans, thanks to the Liquity Protocol.
If you want to learn more about the protocol, technical details and how it works, the team has put together a comprehensive explanation on the Liquity Docs and actively answers questions in the Liquity Discord.
Briefly here, Liquity currently offers the best borrowing conditions on the market with the main benefits being:
- 0% interest rate (no term on your loan too)
- A minimal collateral ratio of just 110%
- Governance free — all operations are algorithmic and fully automated
- Directly redeemable — LUSD can be redeemed at face value for the underlying collateral, always and at any time
- Censorship resistant — the protocol is controlled by nobody
In this guide, as a frontend provider and a supporter of the protocol, I will introduce you to the main functionalities of Liquity Land frontend, its structure and how to use it for making passive income.
How can I make money using Liquity Land frontend?
Inovative nature of Liquity protocol provides various ways to generate revenue. Below I will explain those processes in detail, while using app.liquityland.com:
1. Deposit LUSD to Stability Pool
The first step is to open a Trove (aka Vault/CDP) and borrow LUSD (protocol’s stablecoin).
Go to Trove tab on Liquity Land frontend and deposit ETH as collateral to mint LUSD.
After checking the details of the transaction, click confirm and your Metamask (or other wallet in use) will pop up. After the confimation of the transaction, the ‘your trove’ panel where users can get an overview of their opened trove will appear on Trove tab.
Liquity Land frontend provides additional information in the trove panel, where users can view the liquidation risk and redemption risk for their trove, which are based on liquidation price and ‘debt in front of me’.
Next step is to deposit LUSD to Stability Pool by navigating to Stability Pool tab.
Press the STAKE button and specify the amount of LUSD you want to deposit. Stability Pool depositors receive liquidation gains (ETH) when liquidations happen and earn daily LQTY (protocol’s native token) rewards proportional to their pool share.
In order to ensure that the Liquity protocol is decentralized from day 1, the Liquity team decided to go with decentralized the frontends, by giving the opportunity to frontend providers to earn LQTY rewards through so-called Kickback Rate. The Kickback Rate can range from 0% to 100% and it determines how the rewards are split between users and the frontend provider.
The Kickback Rate on Liquity Land frontend is 99% which means that its users keep 99% of Stability Pool rewards, other 1% goes to the frontend provider.
Please note that borrowed LUSD can be used in various other cases, including leveraging, swapping or simply using it as payment method. This is up to the user to decide, just keep in mind that loans in Liquity can be paid back in LUSD only.
2. Stake LQTY token
Second incentive for users to earn money via Liquity protocol is staking its native token — LQTY. The rewards are earned as a share of borrowing and redemption fees and paid in LUSD and ETH respectively.
After claiming LQTY rewards or buying LQTY on DEXs like Uniswap, user can stake LQTY token by navigating to Stake tab on Liquity Land.
Choose Stake LQTY tab and press STAKE button.
There is an 7-day average APR for LQTY staking available here on Dune Analitycs. At the time of writing, the APR is 20%.
3. Liquidation of risky troves
As mentioned above, the minimum collateral ratio user must maintain is 110%. If the collateral ratio of the trove falls below this margin, it will get liquidated, meaning it loses all deposited ETH and keeps the borrowed LUSD.
Person who makes the liquidation of the trove whose CR is below 110%, receives fixed 200 LUSD reward and 0.5% of trove’s collateral (ETH), which of course can vary based on the amount of ETH deposited. Other 99.5% of trove’s collateral goes into Stability Pool and is shared between Stability Pool providers proportionally to their pool share.
The overview of risky troves is displayed on Liquidation tab, along with the option for liquidation of positions below 110% collateral ratio.
Liquity Land has provided additional information for its users like liquidation price, that shows the price of ETH in $ at which the collateral ratio of the corresponding trove will reach marginal 110%.
Also the potential profit for the Stability Pool is calculated in case the trove gets liquidated.
Note that as from 5/19 ETH crash, more people started building flashbots for the liquidation activity since in case the Ethereum Mainnet is not highly congested, it can be very profitable.
4. Redemption
In the times when LUSD, a USD pegged stablecoin, is floating below 1$, user can benefit by redeeming their LUSD to pay off the debt of the riskiest Trove(s) in return for their collateral (ETH).
The redemption mechanism gives LUSD holders the ability to redeem LUSD at face value for the underlying ETH collateral at any time. Redemptions are always honored such that 1 LUSD equals $1 worth of ETH (minus the current redemption fee).
To redeem the LUSD navigate to Trove tab -> Redemption:
Please note that Redemption is not for repaying your loan, its an important feature that helps protect LUSD’s price floor of $1 through direct arbitrage. When LUSD is floating below peg, an arbitrageur can simply redeem their LUSD against the system as if it was worth $1.
5. Other LP incentives
Since the Liquidity farming period on Uniswap has finished, the Liquity team will announce the next possible option for providing liquidity.
Thanks for reading!
If you have any questions regarding Liquity Land frontend or the Liquity Protocol itself, feel free to ask them on our Discord or Twitter, we will be happy to answer.