Liquity USD
Crypto Overview
Overview and Intended Utility
Liquity USD (LUSD) is a decentralized, USD-pegged stablecoin designed to maintain a soft peg to the US Dollar. The protocol allows users to mint LUSD by depositing ETH as collateral at a minimum collateral ratio of 110%. The system is fully algorithmic, with no governance or admin keys, and aims to provide a more capital-efficient alternative to other stablecoins.
Business Model Analysis
The protocol generates revenue through one-time borrowing fees (currently around 0.5%) rather than ongoing interest payments. This is significant from a Shariah perspective as it avoids traditional interest-based (riba) mechanisms. The protocol utilizes smart contracts to maintain stability and does not rely on traditional financial intermediaries.
Real-World Adoption and Usage
LUSD has achieved significant adoption with over $750 million in total value locked (TVL) as of 2024. The stablecoin is actively used in various DeFi protocols and has maintained its peg effectively through market volatility. The stability mechanism has been tested through multiple market cycles.
Token Distribution and Governance
The system is fully algorithmic with no admin keys or governance token. This removes concerns about founder enrichment as there was no initial token sale or team allocation. The protocol's code is open source and has been audited by multiple firms.
Technical Implementation
The system uses a dual-token model with LUSD as the stablecoin and LQTY as the secondary token for protocol incentives. The stability is maintained through economic incentives rather than direct price manipulation. All liquidations are managed through autonomous smart contracts.
Crypto Impact
To assign a comfort level investing in Liquity USD from a halal perspective we need to determine whether it has a net positive or negative impact.
Towards this end, the table below is used to tally all the positive and negative considerations our members can think of related to Liquity USD.
If you don’t see something that should be listed, positive or negative, feel free to submit your own contribution using the button “Contribute”.
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Importantly, you can review listed contributions and vote on which one you think has the greatest impact, positive or negative.
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