[Discussion] Liquity LUSD/mUSD fPool


  • mUSD/LUSD feeder pool on mStable
  • Opening up the LUSD/mUSD fPool provides interesting arbitrage opportunities with low impermanent loss risk while helping to keep LUSD close to peg, while earning swap fees and MTA for LPs who want exposure to both mUSD and LUSD
  • It will also allow for the first fully-decentralized stablecoin fPool LP pair on mStable
  • See risks section below


  • Liquity is a decentralized borrowing protocol that allows you to draw interest-free loans in their native stablecoin LUSD against ETH as collateral
  • LUSD can be redeemed at any time for $1 of ETH less redemption fees (0.5% + variable base rate)
  • A minimum collateral ratio (MCR) of 110% is required to mint LUSD (e.g. $11K of ETH for $10K loan)
  • Loans are also secured by a stability pool containing LUSD and by fellow borrowers collectively acting as guarantors of last resort
  • Liquity solves the problem where majority of stablecoins are fiat-collateralized and centralized
  • Liquity is non-custodial, immutable and governance free
  • Other unique features include 0% interest rate on borrowing (no debt), MCR of 110%, fully-automated operations (governance-free), direct redemption for underlying collateral, fully decentralized (no admin keys, multiple front-end operators), completely immutable code
  • As of today 20th April 2021, TVL in Liquity has reached US$2.3B with 191 depositors

  • It is also responsible for 10% of ETH locked in DeFi
  • LUSD has a market cap of US$1.2B according to Coingecko of which currently the majority (91%) is locked in the Stability Pool which is used as a defense against liquidations, where upon a liquidation event, the debt is wiped, an equivalent amount of LUSD in the pool is burned, and liquidated ETH will be distributed pro-rata to depositors

  • There is an opportunity for these LUSD to be put into other areas of DeFi outside of the stability pool, for example, in a liquidity pool.
  • One LP that’s currently incentivised is the Uniswap LUSD/ETH LP with a market depth of US$202m and 24h volume of US$17m

  • However, while LPs can earn LQTY rewards for providing liquidity in this pool, there is a significant risk of impermanent loss

  • There is an opportunity for mStable to capture the market for LUSD liquidity outside of Uniswap and the Stability Pool through a stablecoin LP

  • Assuming swap volumes for LUSD range between US$3m to US$28m per day, a 0.03% fee capture will accrue between US$900 to US$8400 per day to Savers and LPs

  • This is an opportunity for mStable to capture LUSD LP market share with significant trade volumes and growth metrics

Hence, propose to launch a mUSD/LUSD fPool to capture this momentum.


  • Exposure to strong community and potentially US$1.2B and growing of LUSD liquidity
  • LUSD is collateralised by ETH (similar to DAI) but with lower collateral ratio and stability pool security


  • LUSD was only recently launched and risks are not fully understood yet
  • However, these risks are only isolated on the fPool and not towards mUSD (as the core mUSD basket is not affected)


  • Yes, let’s do it!
  • No, let’s not

0 voters


Comprehensive and rigorous as always Derc, I’m for this.

Great analysis and you make a really good case for LUSD. I think the fact that LUSD has a similar underlying mechanism that Maker has, makes it less risky. This mechanism is proven to work with Maker overtime already, therefore even if this one is fairly new it’s fair to say that the risk is not that high. Unlike with other stablecoins that have a different mechanism that has yet to be tested. So I am in favor!

Very strong agree here as well. It took me a while to grasp Liquity, but this video here helped me a ton to make out key differences between Maker and Liquity.

I feel both are very relevant in the space, but not having either is clearly a mistake for your wider stablecoin portfolio allocation :grin:

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I know this been a while and this was contingent on some dual rewards.

However, I would like to revitalize this and ask the simple question:

Do we still want to add a Liquity LUSD/mUSD Feeder Pool?

Even without incentives from Liquity, mStable might benefit from this integration more. More assets, more TVL and composiblity?

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I’m supportive of doing an aggressive feeder pool deployment over the next month. LUSD, FRAX, alUSD would be my three top choices. @derc would this be for polygon or layer1 ?

I’m also in support of deploying this fpool, even without dual incentives. I think it would be especially exciting (consider from a marketing standpoint as well) to deploy both the LUSD and alUSD or FRAX fpools (or whichever two are closest to deployment) at the same time , similar to how we deployed the last round of pools. I think that helps push an innovation narrative as well as provides LPs more options upon release for what assets they want to work with.

As a side note, the landscape for LUSD has changed a bit since @derc’s original posting, so I thought I would spend some time gathering data on where LUSD liquidity exists today and what the latest happenings are regarding volume, existing liquidity pools, incentives, and more. I figured it may be helpful to folks when it comes time for voting.

As of June 18th 2021:

  • LUSD has a mcap of $792M

  • 87.72% of the circulating supply (687M/777M) is staked in the Liquity Stability Pool while 10.88% (84M / 777M) is staked in the incentivized LUSD3CRV-f pool (this is the primary liquidity pool and trading pair for LUSD)

  • The other primary trading pairs/pools are the univ3 LUSD-DAI pool, and univ2 LUSD-ETH pool, though they comprise of much less volume relative to the 3pool.

  • We’ll be primarily competing for liquidity with the Liquity stability pool and LUSD3CRV-f pool. The sPool, according to liquity.app is currently paying ~14.09% APY in LQTY (not including liquidated ETH being redistributed to stakers), while the LUSD3CRV-f pool is currently yielding an avg weekly base APY of 0.92%, with incentivized CRV rewards based on an individuals boost ranging from 8.13% to 20.33%

I think dual reward incentives would have greatly helped in bringing some of this liquidity our way, however, even without them based on the historical numbers of the other fpools, we should be able to provide at the very least a competitive APY to those numbers.

  • The daily avg swap volume for the LUSD/3pool appears to be hovering around $20M. Considering Savers and LPs for a moment, if we grab say even 15% of that total volume (no idea if this is a good estimation, just an example), and we assume a 0.02% fee, that would accrue around an additional $600/d to those users. With a new MTA locking-boosting system though, I think we could pull even more than that :slight_smile:

  • On the risk side, when we consider LUSD holding its peg, I think it had a trial-by-fire exercise during the ETH “black swan” event on the 18th/19th of May. It looks to have held its peg quite well hitting a 0.96 low, and then recovering quickly.

In summary, I think deploying this fpool is a no-brainer. Clearly there’s volume to be had, and clearly there’s desire to earn yield on LUSD beyond staking in the Liquity Stability Pool, so all that being said… let’s get this party started!


Great analysis by @lonetree and I think we should deploy on Eth mainnet :blush: more use cases for for LUSD is also good for mStable.


Thanks a lot for the updated figures! Drafting this proposal now :slight_smile:


Awesome analysis @lonetree

Let’s do this asap. @derc dual rewards aren’t possible correct? Second, why not Polygon? is the vast majority of LUSD on layer1 atm, is that why?