Why I’m keeping my eye on $LQTY during the next altseason
Hey folks, so this will be my 3rd installment in my series of articles that looks into different altcoins that I’m keeping tabs on — altcoins that I think have not only some major upsides going into the bull market, but that also seem to have been a relatively safer hold while we’re waiting out this bear market.
I’ve written about $LQTY and the Liquity protocol several times in the past, so if you’ve followed along, it should come to no surprise that I’m bullish on not only $LQTY, but the entire Liquity ecosystem as a whole.
But before I dive into specifically why I’m looking at $LQTY, a quick refresher about what the Liquity protocol is and how it generates #realyield.
What is Liquity?
It has several features, but at the very heart of it, Liquity is a protocol that allows users to make interest free collateralized loans. Once they have selected a Liquity frontend, a prospective borrower can create a “liquity trove” and then deposit their $ETH and borrow $LUSD against it. Liquity’s docs recommend that you keep your ratio at least above 150%, but the protocol has a minimum of 110%. In other words, if there’s a significant $ETH price drop and the collateral ratio falls below 110%, then you are at risk for liquidation.
Once a liquidation occurs, rewards from the liquidation are given to stakers in Liquity’s Stability Pool. Every time there has been a significant $ETH crash, you’ll see that that the stability pool gets well rewarded, sometimes earning close to 700% APR:
Apart from the stability pool, $LUSD is tied into another arm of the Liquity ecosystem, dynamic NFTs fondly called Chicken Bonds. Once one creates a Chicken Bond, the owner starts accruing $bLUSD (Boosted $LUSD) with proof of ownership represented by the egg NFT. From there they have 3 options:
Keep re-bonding — you can continually sell your accrued $bLUSD (or just hold) forever and ever.
Chicken In — at a point where you should be in profit, you can claim your bond, essentially getting the $bLUSD you accrued during your bonding time. In this case, your NFT becomes a full grown chicken:
Chicken Out — If you don’t/can’t wait until the chicken egg reaches maturity, you can “Chicken Out,” essentially forfeiting $bLUSD you earned-to-date, and retain all of the initial capital that you put in (hence why it’s principal protected). In this case, your NFT turns into a little chick running away:
I’m not going to go into detail about the returns that you can make, but if you want to find more detail about chicken bonds and what the team has been doing lately, I recommend you check out their latest thread here:
OK, so where does $LQTY come in?
The $LQTY token once staked, provides a a share of the protocol’s accrued issuance and redemption fees via $LUSD and $ETH. In other words once a borrower creates a trove, the revenue generated is shared with those that are staking $LQTY on the protocol. This is exactly why when there’s a lot of activity going on the protocol, $LQTY stakers generally get a pretty nice payday:
The more troves that are opened, the more that $LQTY holders will profit. And if we truly are seeing the beginning of of a new bull market, then just as we saw during the last bull market, I imagine that massive leveraging and loans are going to ramp up just as much as they have before, if not more:
Above is CryptoQuants estimated leverage ratio (ELR) for $BTC, but as we can see in Liquity’s Dune analytics page, during the same period there was a similar run up to ATH’s of the number of Liquity’s open troves:
As you can also see above, the number of troves has been steadily increasing since last July, and my bet is that we will see ATH’s once again as we’re going into full bull-run mode when people are opening new troves with reckless abandon. And with all the people spinning up new troves and borrowing more $LUSD, I suspect that we’ll see the numbers break off this already increasing chart:
Other tokenomic factors to consider
The slice of the pie is getting smaller: Although $LQTY has a capped supply, $LQTY is the main mode (besides $ETH) in which $LUSD stability pool providers get paid yield. In other words, as $LUSD stakers grow, so does the amount of $LQTY that gets released. Over the past year the amount of $LQTY has significantly increased as well, meaning that if the size of the pie stays the same, the size of the slice may get smaller:
Little dilution left in the system : According to coinmarketcap.com, $LQTY’s total circulating supply is already at 91%, and this is reflected in their token release schedule, and as the protocol is nearly rounding it’s second year:
With no remaining cliffs, this means (hopefully) that there’s very little room left to get dumped on.
Conclusion:
The way I see it, as long as there’s people in crypto that are wanting to open up collateralized loans, Liquity and the $LQTY token will continue to be profitable and it’s only a matter of how much. The Liquity team have proven their meddle throughout this last bear market, and have continued to stretch the limits on innovation and I imagine that they’ll continue to do so going forward.
Thanks for taking the time to read this and be sure to follow me on twitter (https://twitter.com/CryptosWith) to get all my latest updates. Also, looking for a gift for your Crypto-loving/hating friend? Give them a REKT journal to cheer them up!
This is my third article writing about a particular altcoin that I’ve been keeping my eye on, so if you’re interested in reading about what other altcoins I’ve been looking at or why I’m looking at them in the first place, I recommend that you check out my recent articles on $CAKE, as well as $OATH.
Disclaimer: And as a final reminder, this is not financial advice and this is for educational and entertainment purposes only. Please as always, do your own research and find what investments are best for you. Cheers everyone!
