The Liquity team built a non-custodial, immutable, and governance-free DeFi protocol enabling users to take out 0% interest loans using Ethereum as collateral.
Liquity’s borrowing protocol required a reliable and real-time ETH/USD price feed to securely open troves, trigger liquidations, and calculate LUSD redemptions while maintaining a 110% collateral requirement.
Liquity integrated the Chainlink ETH/USD Price Feed, helping the protocol maintain core competitive advantages and secure functionality as it scaled in TVL, peaking at $4.6B Total Value Locked (TVL) within 8 months.
Blockchain-based borrowing platforms are a foundational building block for the emerging decentralized economy. As a financial primitive, lending gives users an option to earn additional yield on various assets, while borrowing unlocks liquidity for users who want to maintain exposure to the underlying collateral asset. In decentralized lending, borrowers and lenders are connected in a non-custodial and peer-to-peer manner through smart contracts, enabling new tools and upgraded features for both parties.
As a prominent player in the decentralized borrowing ecosystem, Liquity allows users to unlock liquidity against their ETH without giving up their exposure to ETH. Users simply post ETH as collateral and borrow a stablecoin (LUSD). Liquity’s core competitive advantages over other decentralized borrowing protocols come from 0%-interest-rate loans and a low collateralization requirement of 110%. Users only need to pay a small, one-time fee of 0.5% during the loan acquisition period, with no terms or set duration on the loan. While all small contracts have a certain level of immutability, the governance models underlying these blockchain protocols often allow for continuous upgrades. Liquity takes smart contract immutability a step farther by being completely governance-free, which means set-in-stone operations from day one that are automatically executed based on encoded rules—another key competitive advantage that lowers costs for end-users.
However, in order to maintain these core competitive advantages, the Liquity team realized they needed a tamper-proof source of ETH/USD price data with which they could quickly and reliably open, close, and settle loan positions even in volatile market conditions. Given its governance-free model and low collateralization ratio requirements, choosing the correct price data source for Liquity’s smart contract from the start was of the utmost importance. All aspects of Liquity’s decentralized borrowing model depend on secure price data that always reflect fair-market prices.
Liquity selected Chainlink because it is the most time-tested decentralized oracle solution in the industry, backed by high-quality data, secure node operators, and a robust reputation framework for proving the security and performance of its systems. Accessed through an immutable proxy interface, Chainlink Price Feeds enabled Liquity to preserve its governance-free model while offering highly accurate and secure price data directly to Liquity’s smart contracts.
Chainlink’s ready-made price oracle infrastructure gave the Liquity team a clear path to accessing robust price feeds that didn’t involve centralized oracle services or natively built price oracles. Chainlink Price Feeds fulfilled all of Liquity’s high standards for a decentralized price oracle solution that would remain consistent at all times. Chainlink Price Feeds’ three layers of data aggregation offer high resistance against any form of price manipulation or exploitation. Furthermore, with a price deviation threshold of 0.5% for the ETH/USD Price Feed, small changes in the price can be reflected in real-time to securely liquidate undercollateralized positions and protect borrower funds, even with a 110% collateralization ratio.
For technical information regarding Liquity’s liquidation mechanism and other protocol functions, please see the Github repositories:
The combination of Liquity’s protocol architecture and Chainlink’s tamper-proof price data set Liquity up for almost immediate success. Liquity launched in April 2021, and it took just 2 days to integrate Chainlink Price Feeds, which has maintained 100% uptime and saved the Liquity team 100+ hours in development time compared to building a proprietary oracle solution. Liquity has since rapidly scaled to serve thousands of users, acquiring $2.7B in TVL within 8 months with a peak of $4.6 billion.
With secure pricing infrastructure underlying their 110% collateral requirement and 0% interest loans, users were able to confidently make use of Liquity’s decentralized borrowing platform to earn additional yields and unlock their liquidity. As Liquity continues to scale, the Chainlink Network’s proven history of securely delivering over 1 billion price data points to smart contracts gives users confidence that the Liquity protocol will run exactly as expected at any point in time.
“By integrating Chainlink Price Feeds, Liquity is able to offer its users a premium, low-cost decentralized borrowing product that has security assurances for loan issuance, liquidations, and settlement.”
Head of Growth at Liquity
Watch this Chainlink Tech Talk to learn more about Liquity’s integration of Chainlink Price Feeds: