SECTION 1: APPLICANT INFORMATION
Applicant Name:
Samrat Lekhak
Applicant title:
Head of Marketing and Comms
Telegram: @samratl8
Twitter: @samexotic3
Email: sam@liquity.org
Project name:
Liquity Protocol
Project Description: Liquity is an immutable, governance-free borrowing protocol that enables interest-free borrowing against ETH as collateral, with loans paid out in LUSD—a decentralized USD-pegged stablecoin. With over $850m in TVL, and $145m in LUSD circulating supply, it is the 15th biggest protocol on Ethereum by TVL and 16th biggest stablecoin on Ethereum.
Team experience and roles:
Information on the team can be found here. The team are all public, and have been in the DeFi ecosystem for multiple years.
Founders
Robert Lauko is the Founder & Head of Research at Liquity. Formerly, Research Associate at DFINITY, working on consensus algorithms, fair incentive schemes, network monitoring, and scalability issues among other things. Ph.D. in Law from the University of Zurich.
Rick Pardoe is a Co-Founder and Core Developer of Liquity. He has experience in building smart contracts and dApps, with a focus on security best practices. He is using Solidity, JS/React, and Truffle. Rick has degrees in Physics and Economics.
SECTION 2a: Team and Product
What makes your team well-suited to carry out the project described in this proposal?
Most of the team members have previous experience in web3. The team possesses an impeccable reputation, shares common values, and embodies the true ethos of crypto. Liquity Protocol has been live for almost 3 years, getting through severe market crashes untroubled.
The team and product is widely regarded to be one of the most secure, decentralized, and safest in all of crypto.
Project Links:
Website: liquity.org
Twitter: https://twitter.com/LiquityProtocol
Github: GitHub - liquity/dev: Liquity monorepo containing the contracts, SDK and Dev UI frontend.
Discord: Liquity
Youtube: https://www.youtube.com/@liquity
Do you acknowledge that your team will be subject to a KYC requirement?: Yes
What novelty does your product bring to Arbitrum?
Liquity is considered one of the blue-chip DeFi borrowing protocols with over $850m in TVL. It pioneered the notion of interest-free borrowing, redemptions, and also the advent of decentralized frontends.
It’s novelty is evident with the fact that it is the 5th most forked protocol in all of DeFi.
LUSD is considered the most decentralized stablecoin in all of Ethereum, and is also the 16th highest circulating marketcap stablecoin. Having launched in early 2021, $LUSD is more than 3 years old now, and it’s decentralized, immutable, and censorship-resistant. Furthermore, LUSD has proved its impeccable resilience in time by getting through severe market crashes untroubled, which has led it it being considered the safest stablecoin in all of crypto.
Is your project composable with other projects on Arbitrum? If so, please explain:
Yes, LUSD is integrated with various DeFi protocols on Arbitrum for lending, borrowing, and as a stablecoin pair across more than half a dozen DEXes.
Do you have any comparable protocols within the Arbitrum ecosystem or other blockchains?
Yes, any protocol that operates a CDP system where stablecoins can be minted are a comparable example. The most comparable protocol, in terms of CDP mechanics are MakerDAO with DAI.
How do you measure and think about retention internally?
We measure and think about retention based on a variety of factors, namely:
- Number of troves open within Liquity
- The growing supply of LUSD across Mainnet and various chains
- The liquidity and depth of LUSD and LQTY across various chains
- The number of Troves that are hopen
- LUSD and LQTY integrations outside of DEXes (eg. money markets)
Relevant usage metrics
There are over 15k holders of LUSD on Arbitrum and $1.6m of TVL on Arbitrum, and over 1k holders of LQTY with over 600k of TVL on Arbitrum.
Did you utilize a grants consultant or other third party not named as a grantee to draft this proposal?
No
SECTION 2B: Protocol details
Is the protocol native to Arbitrum? No, but it has significant integrations and TVL within the Arbitrum ecosystem.
On what other networks is the protocol deployed? The borrowing protocol is only on Ethereum, however the bridged version of LUSD and LQTY are on Optimism, zkSync, Mantle, Polygon zkEVM, Starknet, Base, and Scroll.
Do you have a native token? Yes, LQTY and LUSD
What date did you deploy on Arbitrum mainnet?
LUSD has been a bridged asset on Arbitrum since December 2022. There are over 15,578 holders of LUSD on Arbitrum. LQTY has been a bridged token on Arbitrum since March 2023
LUSD contract address:
LQTY contract address:
Do you have a native token? LQTY, a token that captures the fee revenue generated by the system.
Have you received a grant from the DAO, Foundation, or any Arbitrum ecosystem related program? Yes, Liquity was a recipient of the 75,000 DAO allocation grant from Arbitrum Foundation on March 2023. Link to the grant here
Past Incentivization:
Liquity through the DeFi Collective used part of the 75k ARB received from the Arbitrum Foundation to help grow liquidity for LUSD and LQTY on Arbitrum across various DEXes.
Protocol performance:
Since launching in April 2021, Liquity has issued over $4.7billion in loans. It’s current TVL stands at $865m.
Trove positions:
In terms of other metrics, there are over 820 loan positions open on Liquity, with average borrower borrowing $180k LUSD.
Revenue:
The protocol has generated over $33m in revenue since launch, which are paid out in the form of LUSD (borrow issuance fees) and ETH (in redemptions) to LQTY stakers.
LQTY and LUSD holders:
The number of holders for LQTY and LUSD are at an all time high with over 14,000 and 8,000 holders on Mainnet, and over 15,578 holders of LUSD on Arbitrum alone.
All of this data can be viewed on our official Dune dashboard here
Protocol Roadmap:
As Liquity is immutable, the goal has always been to advance use cases for LUSD and LQTY for our users. With integrations with over a dozen protocols on the Arbitrum network, we were able to secure a Chainlink price feed pretty early on. Our goal is to get more and more use cases for LUSD and LQTY across the Arbitrum ecosystem.
In Q3, we are also launching Liquity v2 on Mainnet. This will bring about a new borrowing protocol that will support multiple LSTs. These multiple LSTs will also be the backing for a new, decentralized stablecoin. The new stablecoin will exist in harmony with LUSD, as there will be an in-built feature where protocol incentivized liquidity (PIL) for the new stablecoin and LUSD on Mainnet will exist.
By applying and getting this grant, we want to be able to grow liquidity for LUSD on Arbitrum in a similar manner, in order to have sufficient liquidity for LUSD and xxUSD (name TBD) in preparation for for users on Arbitrum.
Audit History & Security Vendors:
Trail of Bits Security Assessment
Trail of Bits Liquity Protocol and Stability Pool Final Report
Trail of Bits Liquity Proxy Contracts Report
Further, Liquity runs a bug bounty program with Hats Finance.
The protocol has been live for 2 years and 11 months with immutable smart contracts that can never be changed.
Security Incidents:
Liquity Protocol has never subject of a security breach.
SECTION 3 : Grant Information
Requested Grant Size: 125k ARB over a 12 week period.
The total requested funding is 125,000 ARB, which will be allocated as follows:
- Ramses Protocol (60%):
- Total Allocation: 75,000 ARB.
- Purpose: To increase liquidity for 12 weeks on the LQTY/ETH, LUSD/USDT, LUSD/GRAI & PSM/LUSD pairs.
- Camelot Protocol (40%):
- Total Allocation: 50,000 ARB.
- Purpose: To support the critical pool already supported by Camelot for 12 weeks - LUSD/USDC, and introduce support for new ones such as LUSD/LQTY, PSM/LUSD for 12 weeks.
Justification:
LUSD and LQTY both already have substantial presence within Arbitrum with over 15k and 1k holders respectively and a combined TVL of $2.5m - and this has all been achieved with mostly organic growth.
We want to be able to grow liquidity for both, along with our new stablecoin that will be coming out in Q3.
Grant matching
- N/A
Funding address: 0xc5ADb3d91329E1600cbF573485b1D3207bCf6DE2 (Arbitrum Safe)
Treasury Address:
As Liquity was launched without DAO/governance, the liquidity needs of Liquity are managed by the DeFi Collective.
The DeFi Collective’s safe is - 0xDc6f869d2D34E4aee3E89A51f2Af6D54F0F7f690
SECTION 4 : Grant Objectives, Execution and Milestones
Objectives:
The ARB received will be used as direct incentives or bribes towards growing total TVL and liquidity for LUSD and LQTY across these venues, in this order of priority:
- Liquidity for both LUSD and LQTY on DEXes, with new stablecoin to follow in Q3
- Reserve fund to potentially be used to incentivize LUSD deposits on Money Markets and new integrations.
Milestone 1: Initial Deployment and Transparent Reporting (Ramses & Camelot)
- Launch liquidity incentives in Ramses and Camelot.
- Ramses: Allocate 20,625 ARB each to LUSD/USDT, LUSD/GRAI, LQTY/ETH, and 13125 ARB to PSM/LUSD.
- Target a TVL increase by $707k each in stablecoin pools (LUSD/USDT, LUSD/GRAI), $227k in LQTY/ETH pool and $147k in PSM/LUSD.
- Camelot: Allocate 16,666 ARB each to LUSD/USDC, LUSD/LQTY, PSM/LUSD.
- Target a TVL increase of $347k in LUSD/USDC and $113k in LUSD/LQTY and 113k in PSM/LUSD.
- Measurement: Monitor TVL and APR via on-chain analytics.
- Expected Achievement Date: 2 weeks post-launch.
Milestone 2: Progress Monitoring and Transparent Communication (Ramses & Camelot)*
Goal 1:
- Sustain the targeted TVL in pools with weekly ARB allocations. Continuously monitor TVL and APR adjustments in both protocols.
- Measurement: Regular review of TVL and APR.
- Expected Achievement Date: End of Week 12 from start.
Goal 2:
- Publish detailed monthly updates on progress and adjustments made.
- Measurement: monthly reporting on TVL, APR and allocations.
Expected Achievement Date: monthly updates, End of Week 12 from start.
Milestone Execution:
(Assuming ARB = $2)
Assuming that the time for LPs to come harness APR that is over the average for the given type pool is 2 weeks.
- Ramses Protocol (60%):
Allocation distribution :
- LUSD/USDT = 20625 ARB
- LUSD/GRAI = 20625 ARB
- LQTY/ETH = 20625 ARB
- PSM/LUSD = 13,125 ARB
Stablecoin Pools :
LUSD/USDT and LUSD/GRAI.
- Assumed LP desired APR 20% in ARB
- 1,375 ARB allocated per week ⇒ will increase the TVL by $707k each (total $1.4m)
Launch budget = 2,750 ARB
Baseline budget = 1,375 ARB/week
& 2 bonus 1375 ARB reserve fund, to be added to weekly budget if the TVL observed is below target (707k).
Volatile Pools:
LQTY/ETH & PSM/LUSD.
LQTY/ETH
- Assumed LP desired APR 60% in ARB
- 1,375 ARB allocated per week ⇒ will increase the TVL by $227k
Launch budget = 2750 ARB
Baseline budget = 1375 ARB/week
& 2 bonus 1,375 ARB reserve fund, to be added to weekly budget if the TVL observed is below target ($227k).
PSM/LUSD
The liquidity pool has not yet been created
- Assumed LP desired APR 60% in ARB
- 875 ARB allocated per week ⇒ will increase the TVL by $147k
Launch budget = 1750 ARB
Baseline budget = 875 ARB/week
& 2 bonus 875 ARB reserve fund, to be added to weekly budget if the TVL observed is below target ($147k).
- Camelot Protocol (40%):
Allocation distribution :
- LUSD/USDC = 16,666 ARB
- LUSD/LQTY = 16,666 ARB
- PSM/LUSD = 16,666 ARB
Stablecoin Pools :
LUSD/USDC
- Assumed LP desired APR 20% in ARB
- 670 ARB allocated per week ⇒ will increase the TVL by $347k
Launch budget = 1340 ARB
Baseline budget = 670 ARB/week
& 2 bonus 645 ARB reserve fund, to be be added to weekly budget if the TVL observed is below target ($347k)
Volatile Pools
- LUSD/LQTY
- PSM/LUSD
The liquidity pools have not yet been created.
- Assumed LP desired APR 60% in ARB
- 670 ARB allocated per week ⇒ will increase the TVL by $113k
Launch budget = 1340 ARB
Baseline budget = 670 ARB/week
& 2 reserve fund 645 ARB reserve fund, to be be added to weekly budget if the TVL observed is below target ($113k)
Please note:
-
We might earmark a portion, up to not more than 8% for any new pool related to LUSD or LQTY that might be deployed by partners and that could benefit an initial bootstrapping phase. If this portion, or any other portion, won’t be used by the end of the grant program, we will send back the unused funds to the DAO.
-
While this is the spending plan we project to have based on linear growth of all TVL, we reserve the right to reallocate, with different weights, the incentives in the aforementioned pairs, to be able to better target our KPIs growth
How will receiving a grant enable you to foster growth or innovation within the Arbitrum ecosystem?
As mentioned above, our stablecoin is considered the most decentralized within crypto, and has already received substantial amount of mindshare from the Arbitrum community. By growing liquidity for two stablecoins (and a third one later this year) and LQTY, we believe we will provide a truly decentralized home for Arbitrum users wanting a decentralized stablecoin.
We believe that growing liquidity for said tokens on the network is a net positive by itself, not only for Liquity but also for Arbitrum, as it diversifies the stablecoin offering and offers a credible hedge if regulation-related issues were to arise on a major centralized stablecoin.
Do you accept the funding of your grant streamed linearly for the duration of your grant proposal, and that the multisig holds the power to halt your stream?
Yes
SECTION 5: Data and Reporting
Is your team prepared to comply with OBL’s data requirements for the entire life of the program and three months following and then handoff to the Arbitrum DAO? Are there any special requests/considerations that should be considered?
Liquity is happy to comply with OBL’s data requirements and there are no special considerations.
Does your team agree to provide bi-weekly program updates on the Arbitrum Forum thread that reference your OBL dashboard?
Yes
Does your team agree to provide a final closeout report not later than two weeks from the ending date of your program? This report should include summaries of work completed, final cost structure, whether any funds were returned, and any lessons the grantee feels came out of this grant. Where applicable, be sure to include final estimates of acquisition costs of any users, developers, or assets onboarded to Arbitrum chains. (NOTE: No future grants from this program can be given until a closeout report is provided.)
Yes
Does your team acknowledge that failure to comply with any of the above requests can result in the halting of the program’s funding stream?:
Yes