Liquity

Liquity is a fully automated decentralized borrowing protocol that allows users to permissionlesslly loan their native token LUSD. Their beginning was in late 2019 with the goal to provide a platform that’s more efficient in terms of capital, and also easier to use.

LUSD is a stablecoin pegged to the US dollar, and it serves as the primary network token for the Liquity protocol. When users place ETH into their position (Trove) as collateral, they receive a loan in the form of LUSD.

Users can also become stability providers. Stability providers Stake their LUSD and earn LQTY rewards. LQTY is the secondary network token of the Liquity borrowing system and is not a governance token. LQTY rewards can be put back into the system as a stake, which will provide them a share of the protocol's fees.

There’s a minimum debt amount of 1,800 LUSD, which is designed to prevent spammers from creating a large number of small Troves. Also, from the initial deposit, 200 LUSD is reserved by the protocol to cover gas prices in the event that the account is closed before the debt is repaid.

If person 1 opens a Trove and deposits 5 ETH as the underlying collateral, they would then receive approximately 5,000 LUSD as a loan. However, they would also be responsible for the one-time borrowing fee, which we'll assume is at the current 1% (this can range from 0.5% to 5%). That would come out to 50 LUSD. The 200 LUSD liquidation reserve would be added on, giving a total debt of 5,250 LUSD. However, as the 200 LUSD is simply a reserve, the borrower would only need to repay 5,050 LUSD.

One of the more unique features of Liquity is their Redemption Mechanism. Users who are LUSD token holders can redeem their LUSD stablecoins for ETH at face value — example $10 LUSD for $10 worth of ETH. Redemptions can take place at any time and are significantly more common, as you might expect, during times when there’s a beneficial exchange rate. More about Redemptions can be read in their dedicated article.