Information asymmetry is prevalent in the crypto market. Many media personalities and even some crypto exchanges have demonstrated a glaring tendency to highlight projects that don’t really have much to offer in terms of innovation or value propositions, despite their memetic appeal and public allure during the current bull market.
The recent wave of speculation in “dog coins” is a good example of this fatuous phenomena in action. Nevertheless, there are some crypto projects that continue to foster new ideas and offer distinct approaches to doing things, particularly in the area of decentralized finance (DeFi). One example is Liquity Protocol, which enables interest-free borrowing and is built on Ethereum.
The project launched in April of this year and it already has attracted over $2B in total value locked (TVL). Borrowers can take out loans against their ETH as collateral for a one-time borrowing fee typically as low as 0.5%, in exchange for Liquity Protocol’s stablecoin, LUSD. LUSD maintains its parity with the U.S. dollar via an immutable smart contract design that employs various methods in its approach.
Of notable mention, the project’s LQTY token represents a claim on protocol revenue and can be staked to receive such revenue as it is generated. The total supply is capped at 100M tokens, and will be distributed over a period of several years in accordance to an established issuance schedule.
$LQTYUSD (Coingecko: Liquity Price Chart)
Accordingly, the protocol does not incentivize LQTY stakers by issuing more LQTY to them; their staking revenue is entirely contingent on the fees generated by the project (in the form of LUSD from borrowing fees and ETH from redemption fees) as it grows and becomes more utilized over time.
In this sense, Liquity Protocol’s LQTY may be considered a pass-through token, and is distinguished as a hidden gem in my opinion since many crypto projects resort to inflating their native token supplies to incentivize early adopters, without a strategy to counterbalance this uncapped inflation through actual usage. LQTY, on the otherhand, may be evaluated in accordance to the project’s usage and actual versus projected growth in revenue over time.
In looking at LQTY’s price chart noted above, it appears to have bottomed out after its initial spike following the project’s launch; it has traded under $10 since June and just recently attracted bullish momentum to again trade above it. Erratic price action is to be expected with newly introduced crypto projects, in consideration of ongoing token issuance and limited or no liquidity on centralized and/or decentralized exchanges.
In light of recent announcements on improving capital efficiency for liquidity providers on Uniswap V3 and becoming available for purchase to institutions, LQTY is certainly a token to keep an eye on.