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LUSD is a collateral-backed stablecoin issued by Liquity protocol, with a hard price floor of $1 USD. Users lock ETH and issue the LUSD stablecoin against it, only paying a one-time borrowing fee. Their collateralized debt position is known as a “Trove”. LUSD’s dollar peg is maintained by a redemption mechanism: 1 LUSD may always be swapped for $1 worth of ETH with the system at any time, subject to a redemption fee. Any LUSD holder may deposit to the Stability Pool, where their LUSD will be used to soak up debt from liquidated troves. In return, LUSD depositors receive a share of the liquidated ETH collateral, and can expect a net gain as the value of liquidated collateral is nearly always greater than the debt. Deposits also earn LQTY rewards over time. As such, LUSD depositors are rewarded for their contribution to Liquity’s stability.
Users may access the Liquity protocol through any third-party front end. Liquity.org hosts a list of active front end operators. Front ends compete on UX, trust, and their chosen “kickback rate” which determines the fraction of LQTY rewards their depositors earn. A user opens a Trove by depositing ETH collateral, and withdraws LUSD - they may then deposit their LUSD to earn LQTY and ETH over time.