6 Months: Liqwid's Journey of Growth and Innovation
As we reminisce on our journey since launching on Cardano mainnet over the past half-year, we are filled with gratitude from the continuous support of the Liqwid community and Cardano DeFi ecosystem. Building the smart contracts, tooling and infrastructure required to launch the first pooled lending protocol on Cardano has been an exciting challenge for our core developers. Since our initial product launch, we have focused on improvements to the protocol’s infrastructure and the app’s UI/UX, incorporating feedback and feature requests from the community along the way. Our team’s steadfast dedication to Liqwid protocol users and the Cardano DeFi ecosystem have only increased, and we are thrilled to enter the next leg of growth alongside the incredible community members who make this all possible. We are pleased to share the significant milestones we have achieved since launch, the valuable lessons we have learned along the way, and the next stage of growth for Liqwid.
Liqwid v1 Mainnet Launch
On February 2nd, 2023, we launched Liqwid Finance onto Cardano's mainnet – marking our highly anticipated entrance into this new digital frontier of Cardano DeFi. Forged in the Project Catalyst Ideascale platform, Liqwid v1 launch was the result of 2.5 years of focused engineering work by core developers at Liqwid Labs and MLabs which dates to the protocol’s inception in September 2020. From humble beginnings of Liqwid co-founders who met through Project Catalyst and joined forces to build the first pooled money markets on Cardano to now, the core team has completed its initial vision and is excited to continue building innovative solutions for Cardano DeFi users.
Liqwid: Innovation Unlocked on Cardano
Liqwid is a decentralized pooled lending and borrowing platform on the Cardano blockchain. The non-custodial protocol enables users to supply assets to earn interest and use supplied assets as collateral to borrow any asset approved by the protocol’s governance. Supplied assets can be withdrawn at any time along with any interest accrued since initially supplying from the Plutus smart contract which serves the main liquidity pool functionality.
We note that the ADA supplied on Liqwid are automatically staked to one of the 16 Cardano stake pool operators selected by the Liqwid community via on-chain voting. In the ADA market the user is simultaneously earning interest as a supplier (Supply APY is generated by interest paid by borrowers) and the Cardano Proof-of-Stake staking rewards. Staking rewards are automatically deposited into the ADA market following each Cardano epoch (every 5 days). In this way the Liqwid protocol natively combines the functionalities of AAVE’s pooled money markets and Lido’s liquid staking and presents a unique feature in the Cardano ecosystem and beyond.
The interest rates are calculated on a variable interest rate model based on the market’s utilisation rate (total amount borrowed compared to the amount supplied). In a dynamic interest rate curve when borrow demand for an asset is low the corresponding interest is low, and as demand increases for an asset, the higher the interest rate for the borrowers (and suppliers) grows. For more information about how the Liqwid protocol operates, please view our FAQ.
Liqwid v1 Stats
Liqwid v1 TVL and total value borrowed.
Liqwid TVL breakdown by supported assets.
Liqwid is the 3rd highest in monthly transaction volume compared to all Cardano dApps.
Liqwid is the 3rd highest in all time total volume compared to all Cardano DeFi protocols.
Liqwid total loan volume in each market since mainnet launch.
*Value is in the asset of each market (e.g., 57,103,217.69 ADA and 15,709,450.13 DJED)
Liqwid total interest paid by borrowers in each market (protocol revenue) and the total loan repayment volume since mainnet launch.
The marked expansion in Liqwid’s active user base and TVL in the first 6 months on mainnet underscores the mounting adoption rate and growing popularity of the Liqwid protocol within Cardano’s DeFi ecosystem.
Building the Liqwid v1 Protocol
The Liqwid core developer team (Core Team) led by co-founders Dewayne Cameron and Florian Volery is comprised of Haskell, Typescript and infrastructure engineers at Liqwid Labs and MLabs. Over the years the Core Team has gained strong Plutus domain knowledge through the development of Liqwid, Plutus smart contract tooling and Agora; a Liqwid Labs built on-chain governance module.
During the 6 months following protocol launch, the Core Team has added support for seven Cardano wallets and four Cardano-native asset markets with more set to launch soon pending approval from LQ voters and delegates through Liqwid DAO’s on-chain governance process.
In early April we completed integration with Charli3 price feeds— marking Charli3’s first oracle integration for a DeFi protocol on the Cardano network. This collaboration enables use of the Charli3 price data for critical collateral and liquidation computations thereby boosting the protocol’s decentralization while enhancing reliability.
Overview of the current Liqwid infrastructure
Improving Liqwid Infrastructure
In addition to improving the app interface and focusing on offering the best user experience for Liqwid suppliers and borrowers, the Core Team has focused on broad improvements across Liqwid’s infrastructure. In particular the liquidation bot infrastructure improvements were aimed to enable a more diverse set of Cardano SPOs to easily setup and run liquidation bots to earn profit for repaying unhealthy loans while helping to secure the protocol. The Liqwid API has undergone a complete rewrite to improve app performance and the Liqwid infrastructure used to query the chain has been continuously optimized for performance and reliability gains.
In addition to these app, API and infrastructure improvements, the Core Team has implemented a database of historical protocol transactions, which has been used to create the newly launched transaction history screen in the app. The collection of lending and borrowing actions with transaction details will enable deeper data analysis and help the Core Team model patterns in user actions leading to improved risk management activities.
Liqwid DAO: On-chain Governance and LQ Token Utility
The Liqwid DAO utilizes the Agora governance module for on-chain voting on protocol changes (e.g., support for new markets and updates to protocol parameters). Each staked LQ token grants 1 vote to its owner, and the voting power can be delegated to other Liqwid community members.
In addition to voting capabilities, LQ holders who stake their tokens in the protocol earn both staking rewards. Rewards for staking LQ in the governance module begin at a 5% base APR, increase to 30% APR after 6 months (180 days), and 50% after 1 year (365 days).
In addition to LQ staking rewards a percentage of the interest paid by the borrowers is distributed to the staked LQ holders in the governance module via programmatic distributions following the on-chain vote to activate the fee-switch. The current fee-switch parameters distribute 10% of all protocol revenue to LQ stakers.
LQ tokenomics has been designed to reward the early adopters of the protocol and the long-term LQ holders who stake their tokens and participate in governance. These incentives serve to align the interests of protocol users, LQ holders and the Core Team to continue creating solutions that drive utility and value in the Liqwid ecosystem.
Liqwid Yield Streams
Liqwid’s fully native 6 yield streams available to ADA suppliers in the protocol are all live on mainnet:
1. ADA staking rewards via liquid staking.
2. ADA Supply APY.
3. LQ user incentives.
4. LQ staking rewards.
5. Protocol revenue to LQ stakers (fee-switch).
6. Supply APY on assets earned from the fee-switch.
*Fully native means ADA suppliers can earn these 6x yield streams by utilizing only Liqwid protocol features. Users who provide liquidity on DEX’s or utilize assets earned from the fee-switch distribution in other Cardano DeFi protocols can tap into additional yield streams.
Vision and Outlook
The current financial system is heavily reliant on paper-based manual processes and antiquated technologies that lead to the exclusion of billions of people from basic financial services. Also, these systems are centralized, resistant to changes and vulnerable to attacks and failures.
The blockchain powered decentralized finance (DeFi) key features, namely: permissionless access, transparency, efficiency and composability unlocks a new era of non-custodial financial services. The era of decentralized financial products – composed from crypto assets, smart contracts and programmable money solutions will redefine the processes of commercial and consumer financial markets. The end game is the creation of a new digital paradigm where value is unlocked in a trustless process at every touch point. Traditional finance (TradFi) institutions will transform from value extractors to value providers by enabling tokenization services for real world assets (RWAs). This starts with currency as we are seeing with the growth of fiat backed stablecoins but is also quickly expanding into bonds, commodities and will eventually impact all TradFi assets (e.g., equities, real estate and other semi-liquid assets).
Therefore, decentralized ecosystems will be enhanced by the liquidity TradFi companies bridge over via RWAs with the major incentive for TradFi institutions being to avoid becoming obsolete in the face of a more efficient DeFi alternative system. Cardano with its focus on security, decentralization and through Atala Prism a native identity layer that can be utilized to power compliance at scale is well positioned to onboard the RWA liquidity these TradFi institutions are preparing to bridge onto decentralized financial rails. As a leading liquidity protocol on Cardano Liqwid is well-positioned to partner with TradFi players to start offering institutional DeFi products that leverage tokenized real-world assets. As mentioned above this could be any real-world asset being tokenized and offered in our lending protocol as collateral.
The workflow and process required to implement these solutions on Liqwid has been discussed with key TradFi partners with the focus on ensuring these products adhere to regulatory and legal requirements in various jurisdictions. Our Core Team’s background and previous experiences in the traditional finance industry uniquely enable us partner with the right TradFi and web3 teams capable of helping us navigate this unchartered territory to fulfill this vision.
Overview of institutional DeFi product offering by Liqwid Labs
With the addition of a compliance layer, Liqwid will be able to offer regulated markets, where borrowers and suppliers complete a KYC (Know Your Customer) and AML (Anti-Money Laundering) step before accessing the protocol to lend and borrow tokenized RWAs.
With the use of DID (Decentralized Identifiers) solutions built on Cardano’s Atala Prism purpose built smart contracts for tokenization of RWAs, Liqwid will partner with a regulated TradFi company to manage the compliance tasks, while Liqwid Labs provides the technology infrastructure required for the different markets.
Beyond an institutional product offering for RWAs the Core team envisions the use of Liqwid Pro’s platform for microcredit loans in an isolated lending pool approach powered by DID solutions built on Cardano.
Overall, the Core team is encouraged by the tremendous growth of Cardano DeFi and is excited to extend Liqwid’s protocol to unlock additional utility and use cases within the Cardano ecosystem. Liqwid’s Core Team is leveraging our Cardano-domain knowledge and demonstrated execution power to continue driving growth to the Cardano DeFi ecosystem. With the completion of our initial roadmap for Liqwid v1, we are eager to continue improving the protocol while building additional functionality that captures value for the Liqwid DAO and Cardano DeFi ecosystem alike.
The future is bright for the lands of the Aquafarmers. Stay hydrated friends, things are heating up!
-Liqwid Labs Core Team