Liquity: Decentralized Borrowing Protocol

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Liquity is a decentralized protocol that allows Ether holders to obtain maximum liquidity against their collateral without paying interest. After locking up ETH as collateral in a smart contract and creating an individual position called a "trove", the user can get instant liquidity by minting LUSD, a USD-pegged stablecoin. Each trove is required to be collateralized at a minimum of 110%. Any owner of LUSD can redeem their stablecoins for the underlying collateral at any time. The redemption mechanism along with algorithmically adjusted fees guarantee a minimum stablecoin value of USD 1.

An unprecedented liquidation mechanism based on incentivized stability deposits and a redistribution cycle from riskier to safer troves provides stability at a much lower collateral ratio than current systems. Stability is maintained via economically-driven user interactions and arbitrage, rather than by active governance or monetary interventions.

The protocol has built-in incentives that encourage both early adoption and the operation of multiple front ends, enhancing decentralization.

More information

Visit liquity.org to find out more and join the discussion.

Liquity System Summary

• Disclaimer
• Liquity Overview
• Liquidation and the Stability Pool
  • Liquidation gas costs
  • Liquidation Logic
    • Liquidations in Normal Mode: TCR >= 150%
    • Liquidations in Recovery Mode: TCR < 150%
• Gains From Liquidations
• LUSD Token Redemption
  • Partial redemption
  • Full redemption
  • Redemptions create a price floor
• Recovery Mode
• Project Structure
  • Directories
  • Branches
• LQTY Token Architecture
  • LQTY Lockup contracts and token vesting
  • Lockup Implementation and admin transfer restriction
  • Launch sequence and vesting process
    • Deploy LQTY Contracts
    • Deploy and fund Lockup Contracts
    • Deploy Liquity Core
    • During one year lockup period
    • Upon end of one year lockup period
    • Post-lockup period
• Core System Architecture
  • Core Smart Contracts
  • Data and Value Silo Contracts
  • Contract Interfaces
  • PriceFeed and Oracle
  • PriceFeed Logic
  • Testnet PriceFeed and PriceFeed tests
  • PriceFeed limitations and known issues
  • Keeping a sorted list of Troves ordered by ICR
  • Flow of Ether in Liquity
  • Flow of LUSD tokens in Liquity
  • Flow of LQTY Tokens in Liquity
• Expected User Behaviors
• Contract Ownership and Function Permissions
• Deployment to a Development Blockchain
• Running Tests
  • Brownie Tests
  • OpenEthereum
  • Coverage
• System Quantities - Units and Representation
  • Integer representations of decimals
• Public Data
• Public User-Facing Functions
  • Borrower (Trove) Operations - BorrowerOperations.sol
  • TroveManager Functions - TroveManager.sol
  • Hint Helper Functions - HintHelpers.sol
  • Stability Pool Functions - StabilityPool.sol
  • LQTY Staking Functions LQTYStaking.sol
  • Lockup Contract Factory LockupContractFactory.sol
  • Lockup contract - LockupContract.sol
  • LUSD token LUSDToken.sol and LQTY token LQTYToken.sol
• Supplying Hints to Trove operations
  • Hints for redeemCollateral
    • First redemption hint
    • Partial redemption hints
• Gas compensation
  • Gas compensation schedule
  • Liquidation
  • Gas compensation and redemptions
  • Gas compensation helper functions
• The Stability Pool
  • Mixed liquidations: offset and redistribution
  • Stability Pool deposit losses and ETH gains - implementation
  • Stability Pool example
  • Stability Pool implementation
  • How deposits and ETH gains are tracked
• LQTY Issuance to Stability Providers
  • LQTY Issuance schedule
  • LQTY Issuance implementation
  • Handling the front end LQTY gain
  • LQTY reward events and payouts
• LQTY issuance to liquity providers
• Liquity System Fees
  • Redemption Fee
  • Issuance fee
  • Fee Schedule
  • Intuition behind fees
  • Fee decay Implementation
  • Staking LQTY and earning fees
• Redistributions and Corrected Stakes
  • Corrected Stake Solution
• Math Proofs
• Definitions
• Development
  • Prerequisites
    • Making node-gyp work
  • Clone & Install
  • Top-level scripts
    • Run all tests
    • Deploy contracts to a testnet
    • Start a local blockchain and deploy the contracts
    • Start dev-frontend in development mode
    • Start dev-frontend in demo mode
    • Start dev-frontend against a mainnet fork RPC node
    • Build dev-frontend for production
  • Configuring your custom frontend
• Running a frontend with Docker
  • Prerequisites
  • Running with docker
  • Configuring a public frontend
    • FRONTEND_TAG
    • INFURA_API_KEY
  • Setting a kickback rate
  • Setting a kickback rate with Gnosis Safe
  • Next steps for hosting a frontend
    • Example 1: using static website hosting
    • Example 2: wrapping the frontend container in HTTPS
• Known Issues
  • Front-running issues
• Disclaimer

Liquity Overview

Liquity is a collateralized debt platform. Users can lock up Ether, and issue stablecoin tokens (LUSD) to their own Ethereum address, and subsequently transfer those tokens to any other Ethereum address. The individual collateralized debt positions are called Troves.

The stablecoin tokens are economically geared towards maintaining value of 1 LUSD = $1 USD, due to the fo