What is Liquid Loans? The Premier PulseChain Lending Protocol

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By Connor
Estimated reading: 7mins

How often do you visit your local bank branch these days? Probably not very often. And when you do go there, what are you going for?

The reality is that we hardly ever need to go to the bank anymore because we can take care of almost all our financial tasks online. We can pay our bills, send money to friends, take out loans, transfer between our accounts – and the list goes on – whenever we want to, without having to worry about the banks’ (very restrictive) opening hours.

The rise of online banking over the last twenty or so years has meant that most banks have closed a large percentage of their branches, never to be opened again. Which really begs the question – with their overheads massively reduced, why do interest rates on savings accounts seem to be getting lower and lower? And why do borrowing fees seem to be getting higher and higher?

As DeFi rises in popularity and people become aware of new innovations that allow them to become their own bank, traditional banks will need to get with the times or risk being left behind. Liquid Loans is one such innovation.
DeFi rises in popularity

What is Liquid Loans?

Liquid Loans is a decentralized lending protocol that allows you to draw interest-free loans against PLS (PulseChain coin) used as collateral.
Users deposit PLS and mint USDL (stablecoin). These individual collateralized debt positions are called Vaults.
The minted stablecoins are economically geared towards maintaining a value of 1 USDL = $1 USD of PLS value, due to the following properties:
  • The system is designed to always be over-collateralized.
    The dollar value of the locked PLS exceeds the dollar value of the issued stablecoins.
  • The stablecoins are fully redeemable.
    Users can always swap USDL for PLS (minus fees), directly within the system.
  • The system controls the generation of USDL.
    The operations are done algorithmically, through a variable issuance fee.
After opening a Vault, users mint their own stablecoin to a collateral ratio of at least 110%.
As an example, a user with $11,000 worth of PLS can mint up to 10,000 USDL.
The tokens are freely exchangeable – anyone can send or receive USDL tokens.
USDL tokens are burned upon repayment of a Vault’s debt or via a direct USDL redemption process.
The Liquid Loans system regularly updates the PLS:USD price via a decentralized blockchain oracle.

Why Liquid Loans?

If you have ever sold an asset – maybe it was a crypto, a stock or even a piece of real estate – then watched it go up in value soon after, you’ll know the feeling of wishing you had held onto it for longer. We often call this feeling ‘seller’s remorse’, and one of the main reasons to use Liquid Loans is to extract value from your PLS while avoiding potential seller’s remorse.

And if PLS performs anything like Ethereum has over the last 6 years, the seller’s remorse could be massive, which is why we are #neverselling.

But there’s more to Liquid Loans than extracting value from your PLS without selling. Let’s take a look at more of the benefits within the Liquid Loans ecosystem.

0%, interest-free borrowing

 Unlike with your bank, Liquid Loans allows you to borrow against your asset (in this case PLS) completely interest free. Liquid Loans is able to do this because, once deployed, it is simply a finished piece of code that lives on the blockchain, meaning there are no big, ongoing overheads.

You simply choose your own collateralization level (more on that below) and automatically mint your own stablecoin. You may be thinking that sounds too good to be true, but it really is true.

Liquid Loans was built by community members for the community, and it works because the community provides the protocol with stability. No rent, no bills, no security guards – just community members supporting each other while protected by the blockchain.

DeFi rises in popularity

Low 110% minimum collateralization level

The keyword here is ‘minimum’. The lower you set your collateralization level, the more likely it is that you could become liquidated and lose your PLS.

But before you get scared off, just know this – liquidations can be a very good thing.

Here’s an example:

–– Imagine you have $100k in PLS and so does your friend. You take out a $70K loan using Liquid Loans but your friend does not.

–– The market takes a turn and the price of PLS drops by 70%

–– You get liquidated and lose your PLS, but hold on to the $70K worth of stablecoin you extracted. Your friend simply holds their PLS, and their bag is now only worth $30K.

–– You decide to buy back your PLS for $30k, so now you and your friend are both holding the same amount of PLS, but you have an extra $40k in USDL.

Who would you rather be?

With Liquid Loans, your collateralization level is your choice. The higher you set it, the safer you are from being liquidated. The lower you set it, the safer you are from losing value if the market takes a dive – it’s essentially a stop-loss.

 Don’t be scared of taking a loan, but do make sure to choose your collateralization level wisely.

DeFi rises in popularity

No repayment schedule

Since the stability of Liquid Loans protocol comes from other community members, there is no need for you to ever pay your loan back if you don’t want to.

As long as you maintain a collateralization level above 110%, you are safe from liquidation during the normal running of the protocol.

Note that in the rare case of the system entering Recovery Mode, liquidations can occur under 150% collateralization, which is why we encourage most people to remain above a collateralization level of 150% if they are trying to avoid liquidation.

Completely immutable, fully audited, no admin keys

These days real world bank robberies don’t happen very often – instead, banks are robbed digitally by hackers, and unfortunately, this happens fairly frequently. (Side note – In 2013, a man tried to rob a cashless bank in Sweden, which was a little bit sad and a little bit funny at the same time.)

Hacks happen all the time in crypto too – but never because the blockchain itself has been hacked.

 When you use Liquid Loans, you’re using a completely finished, fully audited piece of code that lives on, and is protected by, the blockchain. Once deployed, the protocol has no admin keys – so even if anyone wanted to change the code, that would not be possible.

Put simply, Liquid Loans is protected by the blockchain, where your bank account is not. Just make sure to never EVER give anyone your seed phrase and to always practise good security.

Healthy passive-income opportunities

Generating passive income inside the Liquid Loans protocol is nothing like the “high interest” (yeah, right) savings accounts offered by banks – and there are two ways to earn.

–– Stake LOAN token in the Staking Pool and receive rewards in the form of USDL stablecoin and PLS

–– Provide stability in the Stability Pool and receive rewards in the form of LOAN and liquidation proceeds in the form of PLS

While Liquid Loans can make no guarantee of how much yield you might receive if you take advantage of either of these opportunities, many community members are extremely bullish on both being potentially very lucrative.

How can I use Liquid Loans?

Liquid Loans will launch on Richard Heart’s upcoming Ethereum fork PulseChain, so you will have to wait for the launch of PulseChain until you can use the protocol.

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Disclaimer:Please note that nothing on this website constitutes financial advice. Whilst every effort has been made to ensure that the information provided on this website is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we strongly recommend you consult a qualified professional who should take into account your specific investment objectives, financial situation and individual needs.

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Connor is a US-based digital marketer and writer. He has a diverse military and academic background, but developed a passion over the years for blockchain and DeFi because of their potential to provide censorship resistance and financial freedom. Connor is dedicated to educating and inspiring others in the space, and is an active member and investor in the Ethereum, Hex, and PulseChain communities.

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