Liquity USD
A
LUSD is the most decentralized stablecoin and is entirely issued, managed and redeemed on-chain.
It is part of Liquity Protocol, a lending dApp that is autonomous, immutable and governance-free.
LUSD is one of the safest on-chain stablecoins, because it requires no governance, management or trust in counter-parties. In designing such a stablecoin, the makers of LUSD have made a conscious decision to eliminate risks which stem from human judgement and embrace technical risks instead.
Liquity advertises a minimum required collateralization ratio (CR) of 110%, which can be perceived as risky, but the actual CR is currently above 250%.
Although Liquity's smart contracts have been audited twice and no exploits have occurred till date, users are reminded that smart contract and oracle risks cannot be eliminated. Unidentified vulnerabilities can lead to a loss of all funds. This risk is common to all stablecoin systems that are managed by smart contracts.
LUSD is most ideal for sophisticated users who trust code over humans as custodian of their assets, and are capable of making independent judgment about a stablecoin's technical risk.
LUSD often trades above $1 (typically between $1 and $1.05) in the open market even though Liquity protocol only guarantees a redemption value of $1 per LUSD.
Users who buy LUSD above $1 are warned that they could incur a small loss if LUSD's market price drops below their purchase price. We, therefore, advise against buying LUSD above $1.
Liquity USD
Stability
Stable
Stable
The Stability factor is evaluated on the following:
1. Reserves Management - Quality, quantity, storage and segregation of reserve assets
2. Market Feedback - Indicators of market's confidence in a stablecoin derived from price and trade data
3. Mechanism - Stabilization methods that protect the stablecoin
Liquity USD
Management
Very Low Risk
Very Low Risk
The Management factor is evaluated on the following:
1. Restrictions - What deterrents exist to prevent key personnel of stablecoin projects from unethical and illegal behavior?
2. Negative Track Record (if applicable) - Have key personnel been involved in scams, frauds or other illegal activities?
Liquity USD
Implementation
Not Assessed
Not Assessed
This factor aims to assess risks arising from technical implementations – i.e, smart contract code and oracles. It is currently not assessed, but we plan for it to be evaluated in the future.
Liquity USD
Decentralization
Very Low Risk
Very Low Risk
The Decentralization factor is evaluated on the following:
1. Platform Censorship Risk
2. Custodian Risk
3. Type of Collateral
4. Diversified Voting Power
5. User Censorship Risk
Liquity USD
Governance
Very Low Risk
Very Low Risk
The Governance factor for on-chain stablecoins is evaluated on the following:
1. Voting Systems - Does the governance function have binding votes and automated on-chain execution of proposal outcomes?
2. Anti-Governance Attack Measures - Are there appropriate preventive and reactive measures to counter governance attacks?
Liquity USD
Externals
Not Assessed
Not Assessed
This factor seeks to incorporate external feedback mechanisms such as market and social sentiment into our internal ratings. It is currently not assessed, but we plan for it to be evaluated in the future.