How liUSD Works
A crypto-native synthetic dollar utilizing spot assets as backing, onchain custody, and centralized liquidity venues, with the ability to use up to 3x leverage on linear perpetuals by collateralizing positions with USDT and USDC on selected exchanges.
Example
A whitelisted user provides ~$100 of USDT/USDC and, in a single transaction, receives ~100 newly-minted liUSD (minus gas & execution costs). During this process:
- Collateral Deposit: The user transfers USDT/USDC to the protocol.
- Mint liUSD: The protocol mints liUSD for the user in an amount equivalent to the collateral’s dollar value.
- Linear Perp Hedge: Simultaneously, Liquild opens a short linear perpetual position for a notional amount matching (or up to 3x leverage of) the user’s collateral value on a partnered derivatives exchange.
Slippage and execution fees are factored into the minting or redemption price. Liquild itself does not earn profit directly from minting or redeeming liUSD.
Delta Neutrality
liUSD maintains its relative peg stability by implementing automated, programmatic delta-neutral hedges with respect to the spot backing assets:
- 1:1 Collateralization: In its simplest form, for every $1 of spot asset (e.g., BTC, ETH, or other crypto) backing liUSD, the protocol takes a matching short position using linear perpetuals.
- Up to 3x Leverage: Depending on market conditions and user/configured parameters, Liquild can employ leverage (up to 3x) on these perpetual positions to optimize yields or reduce capital inefficiencies.
- Offsetting Price Changes: If the backing asset’s price goes up, the short position’s value goes down by a proportional amount, and vice versa. This neutralizes (or greatly reduces) the net impact of price movements on the backing.
Because of this hedge, the backing asset’s price fluctuations do not significantly affect liUSD’s value. A $100 spot position paired with a $100 short linear perp position is delta-neutral, though Liquild’s advanced strategies can incorporate partial or leveraged hedges to optimize funding rates and rewards.
Off-Exchange Custody
Assets backing liUSD are safeguarded in Off-Exchange Settlement solutions. The only time collateral flows between these custody providers and the exchange is to settle funding or realized P&L on the perpetual positions:
- Minimized Counterparty Risk: Liquild delegates, but never fully transfers custody of, the backing assets to centralized exchanges.
- Flexible Margining: Liquild can margin short positions using USDT/USDC while maintaining total (or partial) onchain custody of the underlying collateral.
Because the assets remain in institutional-grade solutions, the protocol significantly reduces its exposure to exchange-specific risks like downtime, insolvency, or forced liquidation events.
Protocol Rewards
sliUSD is the yield-bearing version of liUSD. To earn protocol rewards, users stake their liUSD to receive sliUSD. When you hold sliUSD:
- Funding Rate Income: Much of the protocol’s revenue comes from linear perpetual funding rates (i.e., if the market pays longs, Liquild earns that funding on the short side).
- Collateral Yield: In certain market conditions, leftover collateral (like USDT or USDC) can be deployed in short-term lending or other yield strategies without compromising the hedge, contributing additional revenue.
- Arbitrage & Other Fees: In times of high volatility or funding rate distortions, the protocol may capture extra premium from derivatives arbitrage strategies.
Historical Example (Hypothetical):
- BTC funding rates averaged 10–12% annually.
- ETH funding rates fluctuated between 9–15%.
- sliUSD APY ranged from 15–20% in a moderate volatility environment, influenced by how often short perp positions received a net positive funding.
(These figures are examples, not guarantees.)
Key Takeaways
- Fully Crypto-Native: liUSD is minted directly against crypto collateral, which is systematically hedged with short linear perps.
- Delta-Neutral Stability: Price volatility of the underlying assets is offset by matching short positions, preserving liUSD’s dollar-denominated stability.
- Up to 3x Leverage: Liquild uses controlled leverage (with USDT/USDC as collateral) on derivatives exchanges to optimize yield without incurring fully directional risk.
- Off-Exchange Settlement: Backing assets remain in secure, institutional-level custody, never fully at the mercy of a single exchange’s risk.
By combining onchain custody, linear perpetual hedging, and multiple collateral sources, liUSD offers a synthetic dollar with robust stability mechanics and compelling yield opportunities, while reducing exposure to adverse market swings.