0% Interest:
A key feature of Liquid Loans – there is no ongoing interest charge on your USDL debt. You only pay a one-time borrowing fee when opening your Vault.
Active Collateral:
The amount of ETH collateral currently locked in your Vault. This is the ETH you've deposited that secures your USDL loan.
Active Debt:
The amount of USDL debt currently recorded in your Vault. This is the total USDL you've borrowed and still need to repay to close your Vault.
Active Vault:
A Vault that is currently open and operational, with non-zero collateral recorded. An active Vault has both collateral and debt associated with it.
Admin Keys:
Administrative access codes that would allow developers or operators to modify smart contract code after deployment. Liquid Loans has NO admin keys, meaning the protocol is truly immutable and cannot be changed by anyone.
APR (Annual Percentage Rate):
The annualized rate of return on an investment, expressed as a percentage. In Liquid Loans, APR is displayed for both the Stability Pool and LOAN Staking Pool, though these rates can vary significantly based on protocol activity.
Arbitrage:
The practice of taking advantage of price differences between markets. In Liquid Loans, users can arbitrage USDL when it trades below its $1 peg by buying it cheaply on the open market and redeeming it for $1 worth of ETH through the protocol.
Base:
An Ethereum Layer 2 network developed by Coinbase, designed to offer fast, low-cost transactions while maintaining Ethereum's security. Liquid Loans operates on Base, providing users with an efficient and affordable DeFi lending experience.
Borrower:
Any user who locks ETH collateral in a Vault and mints USDL tokens. Borrowers are taking out 0% interest loans against their ETH holdings.
Borrowing Fee:
A one-time fee charged when you open a Vault and mint USDL. This fee ranges from approximately 0.5% to 5% depending on system demand and is paid to LOAN token stakers.
Capital Efficiency:
How effectively you can use your capital to generate returns. Lower collateral ratios are more capital efficient but riskier, while higher ratios are safer but less efficient.
Chainlink:
A decentralized oracle network that provides real-world data to blockchain smart contracts. Liquid Loans uses Chainlink to securely access ETH price feeds.
Closed Vault:
A Vault that was once active but now has zero debt and zero collateral. Once you fully repay your USDL loan and withdraw all your ETH, your Vault becomes closed.
Collateral:
An asset pledged as security for a loan. In Liquid Loans, ETH serves as the collateral that backs USDL loans.
Collateral Ratio:
The ratio between the dollar value of your collateral and the dollar value of your debt. For example, if you have $1,100 worth of ETH and $1,000 worth of USDL debt, your collateral ratio is 110%.
Collateral Surplus:
The difference between the dollar value of a Vault's ETH collateral and the dollar value of its USDL debt. In a liquidation, this represents the net value that gets redistributed.
Counterparty Risk:
The risk that the other party in a financial transaction might default on their obligations. Liquid Loans eliminates counterparty risk through its decentralized, code-based system.
Custodial Wallet:
A cryptocurrency wallet where a third party (like an exchange) controls the private keys. NOT recommended for use with Liquid Loans or DeFi in general.
Dapp (Decentralized Application):
A software application that runs on a blockchain network rather than centralized servers. The Liquid Loans dApp is your interface for interacting with the protocol.
Dark Mode / Light Mode:
Visual display options in the Liquid Loans dApp that let you choose between a dark or light color scheme for the interface.
Decentralized Finance (DeFi):
A financial system built on blockchain technology that operates without intermediaries like banks. DeFi applications use smart contracts to provide financial services in a permissionless and transparent manner.
DIF (Debt In Front):
The cumulative total value of USDL debt from all Vaults that have a lower collateral ratio than your specific Vault. DIF helps you understand your redemption risk, since the lowest collateralized Vaults are redeemed against first.
ETH (Ethereum):
The native cryptocurrency of the Ethereum blockchain, also used on Base and other Ethereum Layer 2 networks. In Liquid Loans, ETH serves as the collateral asset that backs USDL loans.
Governance Token:
A token that gives holders voting rights to influence protocol decisions. Unlike many DeFi protocols, Liquid Loans is governance-free, meaning there is no voting or governance mechanism.
ICR (Individual Collateral Ratio):
Your personal Vault's collateral ratio – the ratio of your ETH collateral's dollar value to your USDL debt's dollar value.
Immutable:
Unable to be changed or modified. The Liquid Loans smart contracts are immutable, meaning their code is permanent and cannot be altered by anyone, including the development team.
Liquidation:
The process of force-closing an undercollateralized Vault. When a Vault's collateral ratio falls below the minimum threshold, anyone can liquidate it.
Liquidation Reserve:
A 200 USDL deposit required when opening a Vault. This reserve is returned to you when you close your Vault and acts as a gas compensation for potential liquidators.
Liquidator:
Any user who initiates the liquidation of an undercollateralized Vault. Liquidators receive gas compensation for their service to the protocol.
LOAN Staking Pool:
The smart contract where users stake LOAN tokens to earn their share of the protocol's borrowing and redemption fees, paid out in USDL and ETH.
LOAN Token:
The secondary token of the Liquid Loans protocol. LOAN captures fee revenue from the system and can be staked to earn USDL and ETH from borrowing and redemption fees.
LP Rewards (Liquidity Provider Rewards):
A time-limited incentive program that rewards users for providing liquidity to important trading pairs in the Liquid Loans ecosystem, typically the ETH:USDL pair on decentralized exchanges.
Mainnet:
The primary, production blockchain network where real transactions occur with real value, as opposed to a testnet. Liquid Loans is live on the Base mainnet.
MCR (Minimum Collateral Ratio):
The lowest collateral ratio allowed in the protocol, set at 110%. Any Vault that falls below this threshold in Normal Mode will be liquidated.
MetaMask:
A popular browser extension and mobile app that serves as a non-custodial cryptocurrency wallet, allowing users to interact with Base and Ethereum dApps.
Minting:
The process of creating new USDL tokens by depositing ETH collateral into your Vault. When you open a Vault, you mint USDL.
Non-Custodial Wallet:
A cryptocurrency wallet where only you control the private keys. This is the recommended type of wallet for DeFi, as it ensures you maintain full control of your assets.
Normal Mode:
The standard operating state of the protocol, when the Total Collateral Ratio is above 150%. In Normal Mode, only Vaults with collateral ratios below 110% can be liquidated.
Not Your Keys, Not Your Coins:
A fundamental principle in cryptocurrency emphasizing that if you don't control the private keys to your wallet, you don't truly own the crypto stored there.
Oracle:
A service that provides external data to blockchain smart contracts. Price oracles are essential for protocols like Liquid Loans to know the current value of collateral assets.
Over-collateralization:
A system where the value of collateral exceeds the value of debt. Liquid Loans requires at least 110% overcollateralization, meaning every $1 of USDL is backed by at least $1.10 worth of ETH.
Permissionless:
A system that anyone can access and use without needing approval from a central authority. Liquid Loans is permissionless – anyone with ETH can use it.
Pool Share:
Your percentage ownership of a staking pool or liquidity pool. In the LOAN Staking Pool, your pool share determines what portion of protocol fees you earn.
Price Feed:
Real-time data about an asset's market price, provided by oracles. Liquid Loans uses Chainlink price feeds to know the current ETH price.
Private Key:
A secret cryptographic code that gives you access to your cryptocurrency. Never share your private key with anyone, as anyone with access to it can control your funds.
Recovery Mode:
A protective state that activates when the Total Collateral Ratio falls below 150%. In Recovery Mode, any Vault with a collateral ratio below 150% can be liquidated to quickly restore the system's health.
Recovery Mode:
A protective state that activates when the Total Collateral Ratio falls below 150%. In Recovery Mode, any Vault with a collateral ratio below 150% can be liquidated to quickly restore the system's health.
Recovery Seed Phrase:
A series of words (usually 12 or 24) that serves as a backup for your cryptocurrency wallet. This phrase can restore access to your funds if you lose your device or forget your password. Store it securely offline.
Redemption:
The act of exchanging USDL for an equivalent value of ETH directly through the protocol. Anyone holding USDL can redeem it for $1 worth of ETH at any time. Redemptions always target the Vaults with the lowest collateral ratios first.
Redemption Fee:
A fee charged when redeeming USDL for ETH, ranging from 0.5% to 5% based on system demand. This fee is paid to LOAN token stakers.
Repayment:
The act of sending USDL back to your Vault to reduce your debt and increase your collateral ratio. Unlike redemptions, repayments have no fee.
Slippage:
The difference between the expected price of a trade and the actual execution price, common in decentralized exchanges during periods of high volatility or low liquidity.
Smart Contract:
Self-executing code deployed on a blockchain that automatically enforces the terms of an agreement. All Liquid Loans functions operate through transparent, immutable smart contracts.
Stability Pool:
A pool of USDL that serves as the decentralized source of liquidity to repay debt from liquidated Vaults. By depositing USDL in the Stability Pool, users earn ETH from liquidations plus LOAN token rewards.
Stability Provider:
A user who deposits USDL into the Stability Pool. Stability Providers earn ETH when liquidations occur and receive LOAN tokens as time-based rewards.
Stability Provider:
A user who deposits USDL into the Stability Pool. Stability Providers earn ETH when liquidations occur and receive LOAN tokens as time-based rewards.
Staking:
The process of locking tokens in a smart contract to earn rewards. In Liquid Loans, you can stake LOAN tokens to earn protocol revenue, or deposit USDL in the Stability Pool to earn liquidation gains and LOAN rewards.
TCR (Total Collateral Ratio):
The ratio of the total dollar value of all ETH collateral across all Vaults to the total USDL debt in the system. TCR determines whether the protocol operates in Normal Mode or Recovery Mode.
Testnet:
A testing environment that mirrors the main protocol but uses test tokens with no real value. The Liquid Loans testnet at testnet.liquidloans.io lets you practice using the protocol risk-free.
The Coin Zone:
A crypto media outlet powered by Liquid Loans, providing educational content, news, and analysis to help people understand and navigate the cryptocurrency landscape. Available at TheCoinZone.com.
Timeless Repayment Schedule:
A unique feature of Liquid Loans – there are no deadlines for repaying your USDL loan. You can keep your Vault open indefinitely as long as you maintain the minimum collateral ratio.
Transparent:
Open and visible to all. All Liquid Loans operations are recorded on the Base blockchain, making them fully transparent and verifiable by anyone.
True DeFi:
Decentralized finance in its purest form – protocols that are truly decentralized with no admin keys, no governance mechanisms, no central points of failure, and no ability for anyone to change the rules. Liquid Loans embodies these principles.
TVL (Total Value Locked):
The total dollar value of all assets deposited in a DeFi protocol. TVL is a key metric for assessing a protocol's size and adoption.
USDL:
The native stablecoin of the Liquid Loans protocol. USDL is designed to maintain a 1:1 peg with the US dollar and is fully backed by overcollateralized ETH. USDL can always be redeemed for $1 worth of ETH.
Vault:
The core smart contract in Liquid Loans where you deposit ETH collateral and mint USDL. Each Base address can have one Vault, which you fully control.
Volatile / Volatility:
The degree to which an asset's price fluctuates. ETH is a volatile asset, which is why Liquid Loans requires overcollateralization to protect against price swings.
Wallet:
Software or hardware that stores the cryptographic information needed to access your cryptocurrency. Wallets don't actually hold your crypto – they hold the keys that prove ownership of assets on the blockchain.
#NeverSelling:
The philosophy and movement embraced by the Liquid Loans community – the idea that you never need to sell your ETH to access liquidity or earn returns. Instead, you can use Liquid Loans to borrow against your holdings while maintaining exposure to future price appreciation.
The LL Librarian
Your Genius Liquid Loans Knowledge Assistant