[ad_1]
Hey folks, if you’ve followed me for a while, you’ll know that I’m a pretty big fan of Liquity — one of the most forked, immutable, and cheapest $ETH-based collateral lending protocols out there. For those of you who haven’t been paying attention, for nearly half of the last year, $LUSD’s price was trading at slightly below peg, staying just below $0.99:
This meant that during this time, traders could use their $0.99 cents worth of $LUSD to redeem one dollar’s worth of $ETH (which if you’re unfamiliar, $ETH is the underlying collateral asset that people can use in order to mint $LUSD).
This discount sent many troves on Liquity to be redeemed against the trove owner’s will, causing many people to wake up confused for why their position was dissolved, even though the price of $ETH hadn’t changed and that they thought that they weren’t in danger of becoming redeemed, this perhaps being one of my favorites:
Life back above peg
Why the repegging happened: According to @SamExotic3 on Crypto Twitter, the reason for $LUSD’s rebound above peg was due to the actions of one whale paying back around $20 million dollars worth of their collateral debt:
Troves redefined: It’s only been a few short days since $LUSD has risen back above peg, but we’ve already begin to see new trove open back up with much lower LTV ratios:
You’ll notice in the graphic that even the above-200% LTV ratios are still marked as ‘Risky,’ and that’s due to the fact that Liquity’s rating scales were changed a few weeks ago in response to many trove owners complaining that they were mislead as what it meant to be “safe”:
No more redemptions (for now): Correspondingly, with the exception of one questionable individual who made at a redemption above peg, we’ve also seen a halt in redemptions for the last few days as well too:
This makes perfect sense because if someone were to try to redeem a trove now, they would essentially be redeeming the trove at a premium instead of a discount. In other words, if you value 1 $LUSD at $1.02, it would cost you $1.02 for only $1 dollar’s worth of $ETH — it simply makes more sense for you to go to a DEX and get $1.02 worth of $LUSD for $1.02 of $ETH instead.
$DAI Savings Rate vampire attack proven false?: In a previous article, I referenced that part of the speculation for why $LUSD was going below peg was because there was a massive sell-off of $LUSD as people were aping into the $DAI Savings Rate, which was (and still is) holding at around 5% APY:
In other words, the theory was that as long as $DAI was offering 5% APY, this would create immense sell pressure for many people to sell off their $LUSD and enter into an $sDAI position instead. I’d be more than willing to be proven wrong by someone who’s willing to do the work and look through the etherscan transactions, but from a armchair-quarterback standpoint, I don’t think this theory holds water for two big reasons:
1) As I mentioned before, the 5% $DAI savings rate is still there, and for the time being, there hasn’t been news of it going anywhere. If it truly were because of $sDAI, it seems to make sense for $LUSD to go back immediately below peg, but it hasn’t.
2) Perhaps I’ve overestimated how degen crypto bros are, but there are (and have been) much better places to earn more than $sDAI’s 5%, with many strategies including $LUSD. Perhaps I’m overdue for another update onto different strategies involving $LUSD, but from just a 10 second search on Beefy, I found a single-sided $LUSD pool offering 20% APY, which is inflated now due to an $OP boost, but historically since early December 2023 this pool has had an average APY of 6.57%:
Not convinced? If you held $bLUSD ($LUSD’s chicken bond derivative), according to @bjnpck you would have earned a 6.4% APY over the last 90 days:
This wasn’t the first time that $LUSD went below peg, and I’m pretty confident that this won’t be the last. What has held consistent is Liquity’s immutability and resiliency to crypto’s crazy market pressures, and unless the fundamentals of Ethereum change, I think Liquity’s model will always have a place in crypto as a use case for one of the best protocols to borrow against your $ETH.
And as always, 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!
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!
[ad_2]
Source link