Liquity Review 2026: Interest-Free ETH Loans and the LUSD Stablecoin

Liquity is a decentralized lending and stablecoin protocol on Ethereum. Users deposit ETH and borrow a stablecoin pegged to the US dollar. The first version launched on April 5, 2021, and issues LUSD. It was designed by Robert Lauko as a more capital-efficient alternative to systems like MakerDAO.

The protocol is known for loans with no ongoing interest on V1, a minimum collateral ratio of 110%, and an emphasis on immutability and decentralization. Liquity V2 adds the BOLD stablecoin. Posts from the project describe borrowing at user-chosen rates, with fixed rates promoted, and a short list of accepted collateral.

The LQTY token powers the system. Staking it earns a share of fees, and it is paid as an incentive to stability pool depositors. A third-party rating from 2023 gave Liquity a BB with a positive outlook; the project also cites an A- rating for BOLD, which is self-reported.

Liquity is a collateralized debt protocol. A user deposits ETH into a position, called a trove, and mints a dollar-pegged stablecoin against it. The loan must stay above a minimum collateral ratio, which is 110% on V1. If the ETH price falls and the ratio drops below that line, the position can be liquidated.

Liquidations follow a tiered process. The stability pool, funded by users who deposit LUSD, absorbs the debt first and receives the collateral at a discount. If the pool cannot cover it, the debt is redistributed across other borrowers. A recovery mode adds further protection when the whole system is under stress.

The peg is supported by redemption. Any holder can swap LUSD for ETH at one dollar of value, drawing from the riskiest positions. That gives the stablecoin a floor near its target. The LQTY token ties it together: stakers earn borrowing and redemption fees, and stability pool depositors receive LQTY as an incentive. V2 builds on this with the BOLD stablecoin and a rate model chosen by borrowers.

Liquity V1 is described as charging no ongoing interest on loans. Instead, one-off fees apply when users borrow LUSD or redeem it, and those fees flow to LQTY stakers. The exact percentages are set by the protocol and are not listed in this review, so check the borrow screen in the app before opening a position.

V2 uses a rate model in which borrowers choose their own rates, and the project promotes fixed-rate borrowing. Ethereum network gas costs also apply to every transaction. Current V2 rates and fees are shown in the app.

Liquity runs as smart contracts on Ethereum, so users keep control of their wallets and there is no custodian. The risks are contract bugs, oracle failures, ETH price crashes that cause liquidation, and a stablecoin trading off its peg. The immutable design limits admin risk but also means flaws cannot simply be patched.

This review does not cite audit reports, a team roster or a regulatory licence, and the project's own documentation is the place to confirm them. A third-party rating from March 2023 gave the protocol a BB with a positive outlook. The project's own post cites an A- rating for BOLD, and readers should check that rating independently. Only use funds you can afford to lose, and check that DeFi borrowing is permitted where you live.

Liquity is aimed at ETH holders who want to borrow stablecoins without selling their ETH, and at DeFi users comfortable managing collateral ratios. It also suits people who want to earn from the stability pool or by staking LQTY. It is a poor fit for anyone who cannot watch their position or tolerate liquidation.