Liqwid

An open source and non-custodial liquidity protocol for interest rate curves based on lender supply and borrower demand of the underlying Cardano native asset.

Each Cardano native asset that is accepted by the protocol has its own liquidity pool, a.k.a market. Each of these markets has its own interest rate, and this is determined by the supply of the underlying asset along with the borrowing demand for the asset. If borrowing demand is low, and supplied liquidity is high, then interest rates are low; and vice versa.

When an LP supplies an asset to a pool they receive interest-bearing qTokens that represent, 1:1, the amount of liquidity they deposited into the market. As interest accumulates in the liquidity pool these qTokens become redeemable for an increasing amount of the underlying asset. LPs can withdraw their supplied assets at any time with no reliance on loan maturity dates; assuming that` enough liquidity exists.

Each market has its own minimum collateral ratio, and borrowers must post qTokens as collateral. It is the total value of a user’s underlying token balances multiplied by the collateral factor for their supplied assets (e.g. 75) that equals a user’s borrowing capacity and calculates how much they can borrow from the market.

The protocol automates liquidations through a Safety Pool implemented as a smart contract LQ holders stake in and during liquidation events are rewarded with a liquidation incentive; a discounted rate applied on the borrower’s collateral that is being seized by the protocol and paid to liquidators for repaying a portion of their underwater loan and securing the protocol from default risk.

Developers can use the Liqwid SDK to integrate their dApp’s native asset balances directly into a Liqwid market to earn interest, allowing them to monetize this balance as a source of additional return and continuous yields by holding the balance in interest-bearing qTokens.

Industry

DeFi

Lending Protocol

Lending Protocols

Lending protocols in the DeFi world allow people to loan or lend money in a peer-to-peer manner, i.e. without the banking middleman. These loans are secured by the lender over-collateralizing the loan and the terms of the loan being managed in a smart contract. This gives the unbanked or those who have poor credit the ability to take loans, and it gives those with excess capital the opportunity to provide loans in a secure and trustless manner, and to earn income from them.

Over-collateralization means that the person receiving the loan locks up more than the value of the loan to secure it e.g. if they want to loan 100 they must lock up 150. How much they over-collateralize the loan by, and which tokens they use as collateral, depends on the platform. Some platforms only accept stablecoins, and other accept a variety of crypto assets. Typically, an individual uses one asset for collateral and takes a different asset as their loan.

An important factor in all loans is the interest rate and the length of the loan. These vary greatly by lending protocol, and loans can have fixed interest rates and periods, or infinite periods with interest rates that fluctuate throughout the loan period, fluctuating based upon the utilization rate of the pool of funds the loan was drawn from.

Importantly, the receiver of a loan is expected to maintain a certain ratio of collateral to loan, meaning that if the value of their collateral drops below that of their collateral to loan ratio, they need to add more collateral to keep the required balance. If they don’t keep up the collateral ratio they face liquidation and the loss of their collateral.

To "become the bank" those with idle tokens can deposit them into a lending protocol and earn from the interest derived from the loans their tokens are used to facilitate. Usually this deposit requires a lockup period of a certain length of time. Often, the longer the lockup period the higher the percentage return for the depositor.

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