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 guarantees a minimum stablecoin value of USD 1.
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.
Liquity as a protocol is non-custodial, immutable, and governance-free. $LQTY is the secondary token issued by the Liquity protocol. It captures the fee revenue that is generated by the system and incentivizes early adopters and Frontend Operators. $LQTY rewards will only accrue to Stability Providers — i.e. users who deposit $LUSD to the Stability Pool, frontends who facilitate those deposits, and liquidity providers of the LUSD:ETH Uniswap pool. As technical rewards, they are based on a preprogrammed functionality of the protocol and not on a claim towards Liquity AG or any third party. $LQTY is not a governance token.