When you think of borrowing crypto, you probably imagine paying interest—like on Aave or Compound. But Liquity, a decentralized lending protocol built on Ethereum that lets users borrow stablecoins without interest by locking up ETH as collateral. Also known as LUSD protocol, it flips the script on traditional DeFi lending by removing interest entirely and relying on a unique stability mechanism instead. Liquity doesn’t charge you a single percent in interest. Instead, it uses a one-time borrowing fee and a system of liquidations to keep things balanced. That’s not just different—it’s rare.
At its core, Liquity lets you lock your ETH into a Trojan, a smart contract that holds your ETH and issues a stablecoin called LUSD in return. Also known as collateralized debt position (CDP), this is how you get access to cash without selling your crypto. You can borrow up to 90% of your ETH’s value in LUSD, which stays pegged to $1. If the value of your ETH drops too far, your position gets liquidated—but only if it falls below 110% collateralization. That’s much safer than the 150% or 200% thresholds you see elsewhere. And if you’re the one who steps in to liquidate a risky position, you get a 10% bonus in LUSD as a reward. That’s Liquity’s way of keeping the system self-correcting.
What makes Liquity stand out isn’t just the zero interest—it’s how it handles risk. Unlike other protocols that rely on oracles or centralized price feeds, Liquity uses a price feed, a decentralized system that pulls ETH prices from multiple sources to avoid manipulation. Also known as TWAP oracle, it ensures your collateral isn’t unfairly liquidated during short-term price spikes. Plus, you can repay your loan anytime, no penalties, no surprise fees. If you’re holding ETH and need liquidity without giving up your position, Liquity gives you a clean, low-cost path. It’s not for everyone—you need to understand collateral ratios and be ready to top up if prices dip—but for those who do, it’s one of the most efficient ways to borrow in DeFi.
Below, you’ll find real breakdowns of how Liquity compares to other lending platforms, what happens during market crashes, and why some users walk away with more than they put in. You’ll also see how it stacks up against similar tools, what went wrong in past liquidations, and how to avoid common mistakes. No fluff. Just what you need to know before you lock your ETH and hit borrow.
Liquity (LQTY) is a DeFi protocol offering interest-free loans backed by ETH. Borrow stablecoins with just 110% collateral, redeem anytime, and earn rewards by staking LQTY. No interest. No middlemen. Just code.
