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Learn about Liquity USD Staking

Can I stake LUSD?

Liquity provides several options for LUSD holders to generate rewards. Although LUSD cannot be technically staked, Liquity primarily incentivizes users to participate in its Stability Pool, bond LUSD, or borrow funds. Additionally, LUSD is integrated into DeFi lending platforms, including Aave.

Lending Platforms: DeFi lending platforms enable users to deposit FRAX and earn interest on their deposits. These platforms lend out the deposited funds to borrowers, and users receive a portion of the interest generated from these loans as rewards.

Provide Liquidity: Users can earn rewards with LUSD by providing liquidity on decentralized exchanges. By adding LUSD to a liquidity pool, users earn a share of the trading fees generated by the pool. This process is known as liquidity mining or liquidity provision.

Stability Pool: By depositing LUSD into the Stability Pool, you contribute to the stability of the Liquity protocol and help maintain the peg of the LUSD stablecoin. The Stability Pool maintains system solvency by providing liquidity to repay debt from liquidated Troves, keeping the LUSD supply backed. When a Trove is liquidated, LUSD from the pool is burned to cover the debt, and the Trove's collateral is transferred to the pool. Depositing LUSD into the Stability Pool earns users liquidation gains and LQTY rewards.

Bonds: Users can bond LUSD to acquire Boosted LUSD (bLUSD), which is a yield-enhanced version of LUSD.

How are the rewards generated?

The potential earnings from LUSD can vary based on several factors, including the amount of LUSD deposited into the Stability Pool or lending protocols, the staking duration, the market demand, and the specific yield mechanism or platform used.

Provide Liquidity: Users can supply LUSD in a liquidity pool and earn a percentage of the fees paid by DEX users. The rewards are influenced by the size of the particular liquidity pool, the share of that pool, and popularity among users. The volume of trades in the pool influences these earnings; higher trading volume typically means higher returns.

Lending Platforms: The earnings depend on a combination of supply and demand dynamics, interest rates, platform fees, collateral requirements, risk factors, market conditions, platform incentives, regulatory environment, and token utilization. The balance of lender supply and borrower demand primarily dictates interest rates. Platform fees and transaction costs can reduce net earnings, while collateralization requirements and associated risks, such as default and smart contract vulnerabilities, influence interest rates to compensate for risk levels.

Stability Pool: Making your deposit into the Stability Pool will start accumulating a reward (in LQTY tokens) proportional to the size of your deposit continuously.

Bonds: Liquity introduced Chicken Bonds, which opened up new earning and trading strategies for the expected future yield of the Stability Pool. Users can bond LUSD to receive a bLUSD token. It captures an amplified, auto-compounded yield, which they can either hold or trade.

What are the risks of supplying/LP LUSD?

Smart Contract Risk: Depositing LUSD into DeFi platforms exposes users to the risk of vulnerabilities and exploits within smart contracts. Even well-audited contracts can contain undiscovered flaws that hackers may exploit, potentially leading to significant financial losses for liquidity providers and lenders.

Platform Risk: DeFi platforms can be targets for cyberattacks, with successful breaches resulting in substantial losses of staked assets. Additionally, operational failures, technical issues, or mismanagement can disrupt access to staked LUSD and impact the platform's functionality and reliability.

Interest Rate Risk: Lending platforms often have variable interest rates that fluctuate based on supply and demand. Sudden drops in these rates can reduce expected returns for lenders. Additionally, shifts in market demand for LUSD borrowing and lending can lead to significant variations in interest rates, impacting overall earnings.

Counterparty Risk: On lending platforms, there's a risk that borrowers may default on their loans, even with over-collateralization in place. Additionally, the financial health and management of the DeFi platform itself are critical, as mismanagement or financial instability can jeopardize the security of deposited LUSD.

Impermanent Loss: It occurs when providing liquidity to pools, as the value of the tokens in the pool can change relative to holding them individually. Although LUSD is a stablecoin, which reduces the potential risk, pairing it with a volatile token can lead to potential losses despite its stable nature.

Chicken Bond Risk: The risks associated with LUSD Chicken Bonds include potential temporary delays in withdrawals due to heavy liquidations and the volatility of bLUSD market value, which may fluctuate but always maintain a lower bound equal to the redemption price.

What are Chicken Bonds?

Chicken Bonds introduce a unique bonding mechanism designed to bootstrap liquidity for protocols at minimal cost while providing enhanced user protection compared to existing bonding alternatives. Initially implemented for Liquity’s stablecoin LUSD on Ethereum, LUSD Chicken Bonds offer amplified yield-earning and trading opportunities for LUSD holders, helping stabilize its price and improve liquidity. The innovative model allows users to bond LUSD to receive bLUSD tokens, which capture amplified, auto-compounded yields, or "Chicken Out" to reclaim their principal. Additionally, users are rewarded with dynamic NFTs that evolve based on their interactions with the protocol, making the experience more engaging and potentially rewarding.

How Chicken Bonds generate rewards?

Chicken Bonds generate enhanced yield through a mechanism where yields from all system buckets (Pending, Reserve, and Permanent) flow into the Reserve bucket, which then earns yield over and above the yield generated by the LUSD it contains. The bLUSD token, which always redeems proportionally for LUSD in the Reserve, captures this enhanced yield. Users can acquire bLUSD either by purchasing it on the open market, such as through the bLUSD/LUSD-3CRV Curve pool, or by creating a bond, accruing bLUSD over time, and "Chickening In" to claim it. Holding bLUSD allows users to benefit from the amplified yield as its redemption value in LUSD grows faster than holding LUSD directly.

Liquity USD
Liquity USD is a fully redeemable USD-pegged stablecoin issued by the Liquity Protocol. Liquity is a decentralized borrowing protocol that allows you to draw 0% interest loans against Ether used as collateral. Loans are paid out in LUSD and need to maintain a minimum collateral ratio of only 110%. In addition to the collateral, the loans are secured...Read more