Liqwid Update March 2023

Since the latest LQ tokenomics update (see here), the Core Team has been working diligently developing the final components for the Liqwid v1 protocol. The team has made significant progress over the past month, and we're excited to share the latest updates with our community.

LQ User Distribution Rewards (yield farming):

LQ user distribution rewards are a highly anticipated feature that will reward early market participants with additional yield and governance opportunities in the form of LQ token distribution. These rewards will be distributed over the course of four years to lenders and borrowers in proportion to their activity in each market.

The development team has finalized the logic underlying the per-user rewards calculation. Liqwid developers are now conducting an internal review of the calculations prior to releasing the full details of the calculations alongside a proof-of-concept using the historical data of the Liqwid protocol. Longer-term plans include a rewards calculator for examining historical data for any user over any period of time.

All assets, supplied or borrowed, since launch of the Liqwid protocol on mainnet (February 2nd, 2023) will be entitled to a portion of the LQ rewards as part of the user distribution program. The initial proof of concept will cover at a minimum the rewards accrued per user for the entire month of February.

Following the release of this proof-of-concept calculation, the development team will begin implementing and testing a production-ready version of the model. Concurrently, the team will integrate and test a white labeled version of SundaeSwap’s reward distribution mechanism.

LQ rewards are calculated based on regular intervals called “reward epochs”, which may vary in length. The rewards for a given epoch can only be calculated after the epoch ends, and thus are distributed some period of time after the epoch.

When released, the first distribution of LQ rewards will account for the rewards epoch consisting of the first 30 days of usage following the mainnet launch of the $ADA and $DJED markets, with the full rewards going to the $ADA market for the time prior to the $DJED market launch, and being split proportionally thereafter.

Subsequent distributions will happen every two weeks, with the epoch length not exceeding one month. Once the distributions have caught up to the present day, rewards epochs and their subsequent distributions will happen on a weekly basis. In the future, we aim to distribute rewards daily.

LQ staking:

Liqwid governance tokens (LQ) can be staked by depositing them into an Agora Staking contract. In the future the Agora staking contract will be transformed into a Safety Pool (Agora v2) which provides insurance for protocols in the case of shortfall events by exchanging protocol-level risk for user-level risk. In return, users receive a governance token distribution based on the quantity of tokens staked. These additional governance tokens can then be used to participate in the LiqwidDAO’s on-chain governance votes, stake again, or trade. The tokens staked in the Safety Pool are not locked and can be withdrawn at any time.

For the LiqwidDAO’s Agora instance we wanted to incentivize early governance participants by giving them a way to earn extra LQ, even though Agora v2’s Safety Pool (similar to the Aave Safety Module) is not yet released. Thus, the core developers have built out a Staking Pool validator, where staked LQ will earn a risk-free 5% APY that will be distributed using the same mechanism as the LQ user distribution rewards. The distribution of the LQ staking rewards will operate on a similar cycle as the market participation rewards: the first distributions will happen every two weeks for epochs not exceeding one month, with subsequent epochs and distributions happening weekly, and with a final aim of daily distribution. 

The Aquafarmers NFT collection provides LQ stakers a bonus LQ yield. The bonus depends on the rarity of the NFT and is non-cumulable. This is a special thank-you to early supporters of Liqwid! In addition, the Liqwid protocol includes a parameter to pay out a portion of the interest accrued in a market to LQ stakers. These boosted yields represent the dual utility of Aquafarmers in the Liqwid protocol.

The development of the LiqwidDAO Agora front-end is progressing smoothly and will be launched on the preview testnet as soon as the core developers finalize internal review/QA. Soon after, LQ staking will launch on mainnet and be available on the frontend app UI.

LiqwidDAO voting module (Agora instance): 

The audited and open source Agora v1 features a voting module with timelock and on-chain execution similar to Compound’s Governor Alpha/Bravo voting module. This allows LQ token holders to participate in the on-chain governance of the Liqwid protocol. With Agora v1, LQ token holders can propose and vote on changes to the protocol, such as adjusting the interest rate parameters or adding new markets. The voting process is transparent and democratic, with each token representing one vote. This means that the more LQ tokens a user holds, the more voting power they have.

The LiqwidDAO Agora instance has been deployed to the preview testnet, and the off-chain code related to voting on proposals is nearly complete. Because the deployment of a governance framework is security-critical, the team will complete thorough testing and launch LiqwidDAO governance to mainnet soon after.

Following the implementation of the voting module, we will publish an article about the governance voting process to inform the LQ holders and community about this important milestone for the Liqwid protocol.

Once LiqwidDAO voting is on mainnet, we will be able to organize DAO proposals that users can vote on to govern the protocol. Examples of proposals include adding new Liqwid markets, updating protocol parameters, or changing the relative distribution of interest paid to LQ stakers per market.

Additional information:

Developers have released multiple versions for the Liqwid liquidation bot including documentation. The bot is now distributed as a docker image via the Github Container Registry. Instructions can be found on the Github repo. Support can be found in the #spo-bot-operators channel on the Liqwid Community Discord server.

Following each epoch transition since launch we have also successfully added the ADA staking rewards from supply to the Liqwid ADA market back to the protocol, increasing the yield for ADA suppliers (qADA holders). This is a great achievement for Liqwid, which is the first Cardano DeFi protocol to natively add the delegation rewards to the supplier’s positions in a lending protocol. 

The process for the selection, control and rotation of the staking pools that are delegated to from the Liqwid protocol can be subject to a DAO vote once Agora v1 is live.

Following the launch of Agora, the Core Team will receive its first distribution of LQ tokens. Then from there, LQ tokens will be distributed monthly to the relevant team members.

Future work

The team is hard at work building out the above features, while also maintaining the core Liqwid application. To make sure that the launch of the LQ governance token and the launch of the Agora governance framework is fair for all users, we’re strategically dedicating our resources to achieve the following relative timelines:

*Support for lending and borrowing from Liqwid markets direct from Cardano browser wallets is actively being worked on, although not included in the chart below.