Shares of LQTY, the native token of Liquity, a censorship-resistant decentralized stablecoin lender, surged on Monday after New York regulators ordered Paxos to stop minting the dollar-pegged stablecoin BUSD.
The token jumped 45 percent to a six-month high of $1.07, its biggest one-day percentage gain in at least a year, according to TradingView.
The rally, likely stemming from a Paxos-BUSD scenario, raised concerns about a regulatory crackdown on the broader centralized stablecoin ecosystem, including Circle’s USDC, and highlighted decentralized and censorship-resistant stablecoins like Liquity’s LUSD).
“BUSD demonstrates the need for a decentralized and censorship-resistant stablecoin. This is indeed Maker’s mission, and so is Liquity’s LUSD. Maker’s Endgame initiative foresees a regulatory crackdown on cryptocurrencies and RWA, so it is poised to withstand DAI censorship.” The same mission drives LUSD, but its approach focuses on minimal governance and ETH as sole collateral,” shared the DeFi researcher nicknamed Ignas.
Liquity is an Ethereum-based protocol that provides interest-free loans with at least 110% ETH collateral. Loans are issued in the U.S. dollar-pegged stablecoin LUSD, with borrowers paying only a small loan fee. Repurchase fees and loan origination fees are algorithmically adjusted. LQTY is a reward token created by the protocol to incentivize users, UI providers, and stability providers – the first line of defense in maintaining the solvency of the system.
The protocol runs a 2-token model like MakerDAO. However, the difference is that Liquity has no governance system. Therefore, large LQTY holders cannot influence decisions. A fully decentralized setup also means that the original design of the protocol cannot be changed to introduce centralized stablecoins that have recently come under regulatory scrutiny as new collateral.
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What’s more, Liquity does not run its own web interface, and its smart contracts can be accessed through various third-party user interfaces.
“As a company, Liquity AG does not run its own user interface – which makes the system more decentralized and censorship-resistant. To open a loan, deposit funds, etc., users must use one of the user interfaces provided by a third party.”
These features make Liquity LUSD censorship resistant and give the protocol an edge over MakerDAO. It’s no surprise, then, that some traders see LQTY, rather than MakerDAO’s MKR, as a refuge from regulatory crackdowns.
Lewis Harland, portfolio manager at Decentral Park Capital, said:
“LUSD backed by ETH collateral is considered more resistant to regulatory pressure.”
The new trend of decentralized cryptocurrency-backed stablecoins proves that the plot of the cryptocurrency market is changing rapidly. The coins fell out of favor last May after the Terra algorithm caused the UST stablecoin to crash badly.
LQTY is up more than 40% on Monday, MKR is up 12%, and Tron’s TRX is up 3%. Tron, a smart contract platform said to be censorship-resistant and truly decentralized, launched its decentralized dollar-pegged stablecoin USDD last year.
Crypto Twitter is optimistic that Liquity and other protocols offering decentralized stablecoins will continue to shine if the regulatory crackdown on centralized dollar-pegged coins intensifies.
“I don’t understand why LUSD isn’t back to $1B+ market cap again, especially after Gensler’s impulsive move. LQTY is my favorite mid-term pick,” tweeted a DeFi investor.
- Paxos Claims BUSD Is Not a Security – Traders Flee BUSD as Binance Sees Record Outflows
- NYDFS kills BUSD via Paxos after Circle ‘snoop’
According to CoinDesk