Liquid Loans: Decentralized Finance

Introducing Liquid Loans: Your Guide to Becoming Your Own Bank in the World of Decentralized Finance

Embracing DeFi

In recent years, traditional banking has seen a decline in physical visits as we embrace the convenience of online financial services. However, a new trend has emerged in the world of finance known as DeFi (Decentralized Finance), offering individuals the opportunity to be their own bank without intermediaries. Among the various DeFi innovations, the Liquid Loans protocol has garnered attention as a truly-decentralized lending system built specifically for PulseChain, introducing a revolutionary concept of ‘True-DeFi.’

What is Liquid Loans?

Liquid Loans is a groundbreaking DeFi lending protocol designed to empower users by providing them with a unique set of features. One of its key attributes is that it is entirely decentralized, meaning no central authority controls the protocol. Additionally, it is immutable, ensuring that once launched, it cannot be changed. Users’ funds are non-custodial, allowing them to retain complete control over their assets using their wallet address and the protocol’s code. Governance-free, Liquid Loans operates without any central decision-making body, relying on the collective decisions of its community members. Most remarkably, the protocol is interest-free, meaning users can borrow and lend without any interest charges. All these aspects combined make Liquid Loans a shining example of what ‘True-DeFi’ represents.

How Liquid Loans Works:

At its core, Liquid Loans operates as a distributed network of PulseChain’s native token, $PLS, holders who participate by locking up their coins in “vaults” to mint a stable asset known as $USDL. The system’s architecture is carefully designed to remain overcollateralized, ensuring its stability and protecting it from potential financial crises like those experienced by other stablecoins in the past.

Liquidations: Ensuring Stability and Value Preservation:

In the event that an individual’s vault falls below a 110% collateral ratio, liquidations come into play. This means if a user holds $15,000 worth of $PLS and mints $10,000 worth of $USDL, but the value of their vault drops to $10,999 without repaying the debt, the vault would be at risk of liquidation. In such cases, the $PLS in the vault is distributed to the Stability Pool, which assumes responsibility for paying off the undercollateralized vault’s debt. This mechanism ensures that the total value locked in $PLS remains higher than the total value of $USDL in circulation, preventing any risk of de-pegging $USDL from its one-dollar value.

Stability Pool: Support for System Health and Growth:

The Stability Pool is a smart contract filled with $USDL deposited by community members seeking to contribute to the protocol’s stability and growth. This pool is responsible for paying off debts owed by vaults with collateral ratios below 110%. As a reward for providing this service, participants in the Stability Pool receive a greater value in $PLS than the $USDL they originally deposited, resulting in significant returns for those who contribute to the pool. Additionally, stability providers also earn rewards from a pool of LOAN tokens, which decreases over time similar to the Bitcoin halving.

Redemptions: Ensuring Price Stability for $USDL:

The redemption function plays a vital role in maintaining over-collateralization and price stability for $USDL. Users can redeem their $USDL for $PLS at any time, and the $USDL is taken from the lowest collateralized vault in the system, converting it to $1 worth of $PLS per $USDL redeemed. This mechanism acts as a hard peg for $USDL, ensuring its value remains close to one dollar. In cases where the value of $USDL falls below one dollar, crypto arbitrageurs can buy $USDL from the market, pushing its price up, and redeem it for $PLS to make a profit.

LOAN Staking Pool: Owning the Bank:

Holders of the LOAN token have the opportunity to deposit it in the staking pool to earn fees from the protocol. Both the redemption and borrowing functions incur users a 0.5-5% fee, which is distributed to the LOAN staking pool according to users’ share in the pool. While LOAN stakers “own the bank,” they don’t have the power to change the protocol’s rules, ensuring that it remains decentralized and community-driven.

Use Cases and Benefits of Liquid Loans:
Beyond its technical intricacies, Liquid Loans provides users with numerous advantages:

  1. Value Extraction without Selling: By using the borrow function, users can extract value in the form of $USDL without needing to sell their underlying assets like $PLS, thereby allowing them to benefit from potential price increases in $PLS.
  2. Truly-Decentralized Stable Asset: $USDL is a stable asset generated by an immutable, governance-free, and censorship-resistant protocol, offering users a means to de-risk, earn yield, and transact without leaving the PulseChain ecosystem.
  3. Yield Opportunities: The LOAN Staking Pool enables users to earn yields from staking $LOAN tokens in a risk-on asset like $PLS while still holding a risk-on principal in $LOAN.
  4. Stability Pool in Bear Markets: The Stability Pool allows users to earn yields on a stable asset even during market downturns, as the pool’s returns typically increase in bear markets due to increased liquidations.
  5. Reduced Sell Pressure: With Liquid Loans, users can earn trustless yield and extract value from $PLS without resorting to market selling, thereby reducing potential sell pressure on the PulseChain ecosystem.

Empowering DeFi

Liquid Loans presents a groundbreaking financial opportunity within the world of DeFi, offering users the chance to be their own bank through a truly decentralized, interest-free, and community-driven lending protocol. By minting $USDL through the use of $PLS, users can unlock a new era of decentralized financial transactions, stable assets, and de-risking opportunities, all while avoiding the need to leave the blockchain or incur counterparty risks. As a testament to the core principles of ‘True-DeFi,’ Liquid Loans embodies the ethos of the cryptocurrency movement and empowers users to shape their financial destiny within the PulseChain ecosystem.

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