Borrowing with Liquity lets users get long leverage on ETH. But what about short leverage? QuiD’s got you covered, with short squeeze protection for borrowers and max drop protection for lenders.
Instead of simply looping through the least collateralized borrowers and claiming their collateral (while burning debt), QuiD uses the Dead Pool as a first resort. This is more graceful towards borrowers that like to live on the edge.
Lower Liquidation Threshold
Borrowers using Liquity get liquidated when they fall below 110% collateralisation. With QuiD, you have to start out 110% over-collateralized just like Liquity...but you only get liquidated when you fall below 100%.
For this you pay a dynamic rate, and if you want to dramatically lower your rate you can commit individually to a higher liquidation threshold above 100%. Liquidations take out the largest borrowers first.
Diversification (Cross Chain)
Maker’s Black Thursday event would crush Liquity even if Liquity had multiple collateral types. What’s truly needed is collateral across chains. If one chain is gridlocked, borrowers would still be able to either:
A. not even worry about getting liquidated if their collateral is sufficiently diversified, or
B. even if it’s not, still have the ability to top up their position by means of another chain
Diversification is also factored into loan pricing, giving discounts to more diversified portfolios.
Continuous Risk-based Rates
In Liquity users pay a one-time up-front LUSD issuance fee. It either falsely tries to encapsulate compensation for all possible future price shocks, or assumes that it doesn’t need to. Regardless, wasn’t one of the hallmarks of blockchain the ability to enable streaming micro-payments?
Borrowers using QuiD can obtain much more efficient rates by paying over time. The flip side is also true, as borrowing on the cusp of a risky market could mean high rates for an unpredictable period of time.
The great thing about only accepting consensus-staked cryptos as collateral, is that their native risk-free yields will often cover the full cost of borrowing, or at least a good chunk of it. That's right, free loans!
What is the basis for QuiD’s dynamic, continuous borrowing rates? The most mature solvency stress testing framework used by banks around the world. The protocol constantly asks itself, what is the worst event that could happen given our latest data, and how well equipped should we be to sustain that?
No Stability Pool
In Liquity, LUSD stakers are first-class citizens when it comes to claiming liquidated assets. Thus, users are natively incentivized to borrow LUSD (or purchase externally) and stake it.
In QuiD, we flip the script: “solvency providers” that earn by depositing their crypto, don’t have to borrow first or go out and buy stablecoins, as is the case with Liquity’s Stability Pool accepting only LUSD.
Instead, depositors may back all the borrowing going on with their native crypto assets. Staking stablecoins allows depositors to earn fees from reverse redemptions.
No Recovery Mode
The main reason for recovery mode is to sustain a static level of total collateralisation at 150%. It's a safe bet, but what if this figure is actually not always ideal?
Instead, QuiD asks depositors to regularly vote (or delegate their vote if they wish to abstain) on how much above 100% solvency the protocol should be. The farther below the system is from this solvency target, the more expensive borrowing becomes to attract more solvency capital.
Recovery mode also has a condition where new loans cannot be opened if they’re below the CR of the current system CR. Recovery mode would be triggered when collateral prices are falling and the price of LUSD is above a dollar, but this is exactly when arbitrageurs would want to openLoans on to buy more dollar’s worth of crypto.
This arb is very inaccessible due to the high over-collateralisation requirement enforced by Recovery Mode. With QuiD arbitrageurs can profit in this situation without opening new loans, using Reverse Redemptions.