FAQ: Frequently Asked Questions

Below you’ll find answers to some of the most common questions about Liquild and its synthetic dollar, liUSD.

1. Basics & Eligibility

Who can mint or redeem liUSD?

Currently, only addresses that pass KYC/AML checks are whitelisted to mint or redeem liUSD. Some regions (like the United States) may have restricted access due to regulatory considerations. If you’re unsure about eligibility, please reach out via our Telegram or Discord.

Do I need stablecoins to participate?

Yes. Liquild typically requires users to buy liUSD with stablecoins (e.g., USDT, USDC) or other accepted assets. Those stablecoins are used to fund the hedged strategies that back each newly minted liUSD token.

Is the protocol audited?

Liquild’s core smart contracts undergo third-party security audits and we maintain a bug bounty program. Although audits reduce risk, they cannot guarantee zero vulnerabilities—users should review the risks carefully before engaging.

2. Peg & Stability

How does liUSD maintain stability?

liUSD’s stability primarily comes from Liquild’s delta-hedging approach:

• When users deposit assets, the protocol opens short linear perpetual positions, offsetting the risk of the backing assets’ price movements.
• Because the spot value and short positions are balanced, price volatility of the underlying assets is minimized in terms of USD valuation.

Does delta-hedging guarantee a perfect peg?

No system is entirely risk-free. While delta-hedging significantly reduces market exposure, sudden market dislocations, liquidity crunches, or other unforeseen events can still impact liUSD’s price stability. However, under normal conditions, the protocol’s automated hedging engine helps keep the liUSD value close to $1.

3. Security & Custody

How are the backing assets protected?

Liquild uses regulated custodians and MPC (multi-party computation) wallet providers to store protocol assets. These solutions allow funds to be deployed on exchanges only when necessary (e.g., to maintain or adjust hedging positions), minimizing the amount held on any single exchange at a time.

Why doesn’t Liquild store collateral directly on exchanges?

Keeping large amounts of user collateral on a centralized exchange exposes the protocol to possible exchange freezes, withdrawal limits, or unexpected insolvencies. By relying on off-exchange custody, Liquild retains control of assets and can relocate them if an exchange experiences issues.

What happens if an exchange fails?

Because assets aren’t fully deposited on the exchange (only enough for margin needs), a hypothetical failure or bankruptcy of that exchange should not lock up the majority of Liquild’s backing. This approach mitigates counterparty risk so users retain their ability to mint or redeem liUSD.

What happens if a custodian fails?

Custodians operate under specific structures called trust funds. They are used to store assets in a way that allows users to access them in case of bankruptcy. They also are subject to strict regulations and cybersecurity measures.

4. Minting & Redeeming

How do I mint liUSD?

1. Deposit Assets: If you are an approved entity, provide stablecoins (like USDT, USDC) or other accepted tokens.
2. Protocol Action: Liquild automatically opens a short perp position on the user’s behalf, hedging the deposit.
3. Receive liUSD: You get newly minted liUSD in your wallet, minus small fees (e.g., slippage, gas costs).

What about redeeming liUSD?

Redeeming reverses the process:

1. Burn liUSD: If you are an approved entity, you send liUSD back to the protocol.
2. Close or Rebalance Hedge: Liquild unwinds or adjusts the corresponding short perp position.
3. Receive Collateral: You get the stablecoins or other collateral assets back in your wallet.

Is Liquild profiting from minting or redemption?

No. The protocol factors in slippage and execution costs to ensure efficient minting or redemption, but Liquild does not collect a margin on these steps. Revenue instead comes from yield-generation activities like perp funding and stablecoin interest.

5. sliUSD & Rewards

What is sliUSD?

sliUSD is the staking version of liUSD. When you stake liUSD, you receive sliUSD, which entitles you to a share of the protocol’s revenue (e.g., perp funding, basis trades, stablecoin yields).

Where do protocol rewards come from?

1. Perpetual Funding Rates: Typically, short positions receive funding when the market is predominantly long.
2. Position spreads: Liquild may capture extra yield by arbitraging the price difference between spot and perpetuals contracts.
3. Collateral Yields: Idle stablecoins or staked assets can earn additional interest or rewards, boosting protocol revenues.

Are these yields consistent?

Funding rates can be volatile, occasionally turning negative during market reversals. Over multi-month periods, they often trend positive, netting a meaningful return for short positions. The protocol also diversifies into other yield streams, so the overall APY for sliUSD holders can be relatively stable.

6. Perpetual Futures & Market Volatility

Why linear perpetuals?

Linear perpetuals return a higher and more consistent yield. They are also more liquid and diversified.

Aren’t funding rates unpredictable?

Yes, they can swing significantly when markets are volatile or when one side (long/short) is heavily crowded. However, historical data shows mean reversion over time. Liquild’s strategy capitalizes on periods when funding is positive for shorts, which has generally been the norm for major crypto assets.

Does leverage affect my risk?

Due to the nature of linear perpetuals, the protocol may use modest leverage (up to 3x in some cases) to optimize yield, but all positions are monitored and collateralized in real time. While leverage can amplify returns, it can also magnify certain risks. Liquild’s risk parameters aim to balance these factors for sustainable yield.

7. Additional Inquiries

Can I see my position details in real-time?

Yes. A dashboard is available on the Liquild dApp, providing real-time insights into your liUSD balance, sliUSD rewards, and overall protocol metrics (e.g., the protocol’s total backing, hedges, and yields).

Is this truly DeFi if custodians are involved?

While Liquild’s smart contracts are fully decentralized and transparent on-chain, custodial partners are utilized for off-exchange asset storage to reduce centralized exchange risk. This model blends the trustless nature of on-chain transactions with the security benefits of institutional-grade custody.

What if I have more questions?

We’re happy to help! Join our Telegram or Discord communities, and check our detailed documentation for everything from technical overviews to advanced strategies.

Last updated: [17/02/2025]

_We frequently revise this FAQ to address the most common user questions and protocol updates.