Liqwid is a new exciting project that is rapidly attracting investors’ attention. The founder team has built this open-source Defi protocol on the Cardano blockchain. The latter creates liquidity pools, but unlike other blockchains, it algorithmically sets interest rates. The system calculates them by the lender supply, as well as borrower demand for the asset.
Suppliers and asset borrowers can connect directly to the smart contract within this protocol. As a result, they will be able to earn and pay a variable interest rate for each block without having to settle contract terms in advance.
Moreover, the company stated that every liquidity pool would be exclusive to a native asset on Cardano, along with the interest rate index for the specific market. The company will also safeguard an archive of all transactions.
Liqwid has its own native utility token, LQ. The total supply of these ERC20 coins is 21,000,000. The team plans to launch the ICO sale soon. It wants to incentivize people to invest in the project. Thus, token holders will receive various benefits.
Typically, platforms match liquidity providers (LPs) assets and lend to a borrower in TradFi money markets or peer-to-peer solutions. However, the Liqwid protocol uses a new strategy. It combines the assets of each customer into a liquidity pool in a peer-to-pool strategy. Thus, after the client deposits a supported asset, it will become a fungible asset in the protocol.
The Liqwid platform will use a type of automated market maker that enables much more liquidity compared to direct lending. Besides, users can withdraw their assets at any time, despite loan maturity dates.
The company will ensure that a Cardano native asset balance (“qToken”) will represent the assets supplied by customers. The asset owners will have a claim to the yield generated from their funds.
How can customers redeem qTokens?
The team noted that with increasing borrowing demand, the liquidity pool would accumulate lots of interest. After the underlying assets bring yield, customers will be able to redeem qTokens. They can also easily earn interest by holding these Cardano native assets.
Furthermore, investors holding ADA or Cardano native assets will be able to use the company’s market as an additional source to generate yield on their investment. A customer owning ADA can simply supply their assets to the Liqwid protocol and earn money. They won’t need to send coins to a centralized third-party custodian, match borrows, enter high default-risk loans with low-credit borrowers, or actively manage their holdings.
As qToken is also a platform’s native asset, like LQ tokens, its owners will be able to use it to power any yield-generating protocol on the Cardano blockchain. However, they should ensure that this protocol supports qTokens first.
Developers building Cardano Defi protocols will also benefit from this project. They can use the Liqwid protocol to monetize their dApp’s balance. As a result, they will get another source of additional returns.
Meanwhile, borrowers will enjoy this seamlessly working platform as it makes even complicated agreements and transactions seem easy. Liqwid customers will have an opportunity to use qTokens as posted collateral. However, every market has a minimum required collateral ratio. Thus, users should research that information to choose the one that suits their needs best.
This platform makes borrowing very straightforward. It only requires from customers a selection of a preferred asset. The company doesn’t have any maturity loan dates, loan initiation costs, contract terms to settle, or capital-inefficient required collateral ratios.
What about the collateral?
Usually, every lender asks for collateral to ensure that it will get its funds back with interest. That’s a standard procedure. However, in some cases, borrowers can still use their collaterals to some extent. It all depends on what kind of insurance they offer.
Liqwid plays with its own rules. The company posts assets supplied by users as collateral to borrow from a Liqwid market. However, customers can only own qTokens on this platform. Thus, they must buy the coins first, investing in them, and then the company will use them as a safeguard against the loan.
If users borrow outstanding loan amounts that surpass their borrowing capacity, they can become subject to liquidation. That means the company will use the user’s qToken collateral to repay the loan. Lending protocols require liquidators to intervene quickly and reduce default risk in outstanding loans, especially during market volatility.
Liqwid plans to utilize an internal mechanism. Thanks to the latter, it will pool the insolvent loans in the protocol. That will allow arbitrageurs to repay all or part of the loan amount over the borrowing user’s limit. Arbitrageurs will receive a portion of the borrowing user’s collateral at a discount in exchange for repaying the loan. Such a strategy will also help to automate the liquidation process.
Moreover, Liqwid wants to change the TradFi lending model. To achieve that goal, it will enable customers to access competitive interest rates from several global liquidity pools easily. This platform will offer many other advantages, including giving borrowers access to competitive interest-rate loans at zero slippage and zero fees. Customers won’t even need to sell their collateral. Developers will be able to build integrations and connect their dApp’s balances directly into the company’s market to earn interest.
What is Liqwid’s main goal, and how will it use the LQ token?
The Liqwid team aims to establish noncustodial money markets, or Defi ledgers, that maintain double-entry accounting bookkeeping. That will allow Cardano users to borrow and supply native assets while simultaneously calculating accrued interest. The company will deploy the smart contracts that compose the Liqwid protocol on the Cardano blockchain.
Furthermore, the team plans to launch LiqwiDAO soon. It is already working on a governance structure. LQ holders will receive voting power and be able to participate in the decision-making process. In fact, LQ token holders will govern the Liqwid protocol. LQ will enable the community to decide the future development of the protocol collectively.
According to the company, governance processes will include the ability to propose or vote on an update of a contract parameter, as well as a new qToken market via Market Initiation.