Liquity USD (LUSD)

The protocol’s core mechanism is overcollateralized borrowing. Users lock ETH in a Trove and can draw LUSD as debt, provided they maintain the required collateral ratio. Liquity is known for its comparatively low minimum collateral threshold of 110%, which is supported by liquidation mechanics and a Stability Pool. Participants can deposit LUSD into the Stability Pool, where it is used to absorb undercollateralized debt in exchange for collateral from liquidated positions.

LUSD is also supported by a redemption process that allows holders to exchange it for the underlying ETH collateral through the protocol, helping anchor the token near its dollar target. Liquity’s design is non-custodial and immutable, meaning users interact directly with smart contracts rather than a centralized operator. It is also governance-free, so core parameters are not adjusted by token-holder voting after deployment.

Within decentralized finance, LUSD serves as a stable medium of exchange, collateral asset, and liquidity tool for users who want dollar exposure while retaining a crypto-native, censorship-resistant borrowing structure.