The short answerLUSD is the purest design in the category: immutable contracts with no governance and no admin keys, backed only by ETH, and redeemable at face value by anyone at any time. That rigidity limits what can be built around it, which is why it stays small.
Best forImmutable, governance-free dollars
Reserve qualityweight 30%
8.0avg 7.7
Attestation & auditweight 20%
8.0avg 7.2
Peg recordweight 20%
8.0avg 8.0
Redemption accessweight 15%
9.5avg 7.5
Regulatory standingweight 15%
6.0avg 6.6
this service category average across 15Score = Σ mark × weight. Works well for a specific use case, weaker outside it. Methodology.
| Criterion | Mark | What we found | Source | Checked |
|---|
| Reserve quality | 8.0 | not sourced yet | not sourced yet | — |
| Attestation & audit | 8.0 | not sourced yet | not sourced yet | — |
| Peg record | 8.0 | not sourced yet | not sourced yet | — |
| Redemption access | 9.5 | not sourced yet | not sourced yet | — |
| Regulatory standing | 6.0 | not sourced yet | not sourced yet | — |
What we liked, and what fell short
Liked- Contracts are immutable with no governance and no admin keys
- Anyone can redeem LUSD for ETH at face value, enforcing the peg
- Backed only by ETH, with no centralised stablecoin exposure
Fell short- Small supply and limited integrations
- Redemption mechanism can close the positions of the lowest-collateralised borrowers
Why the marks landed where they did
Liquity removed the thing that makes most stablecoins a governance question. There are no keys, no upgrades and no votes. The contracts deployed in 2021 are the contracts running today, and nobody can change what backs LUSD or how it behaves.
Why direct redemption enforces the peg
Anyone holding LUSD can redeem it for ETH at face value from the riskiest open positions. If LUSD trades below a dollar, redeeming becomes profitable, which buys LUSD and closes the gap. That arbitrage is mechanical and permissionless, and it is a stronger peg mechanism than a peg keeper or an issuer's promise.
The cost to borrowers
Redemption falls on the lowest-collateralised positions, so a borrower running close to the minimum ratio can find their position partially closed against them without warning. That is the trade-off for the peg's strength and it is well documented — borrowers should keep buffer above the minimum.
Why it stays small
Immutability means no new collateral types, no parameter changes and no adaptation. Building on LUSD is building on something fixed, which is safe and inflexible. Liquity v2 introduced a separate system with more features while leaving v1 running untouched, which is the correct way to handle that tension.
Who should use it
Users who want a stablecoin backed only by ETH with no governance surface, and borrowers who want interest-free debt with a one-time fee and will manage their collateral ratio actively.
FAQ
What makes LUSD different?+
Immutable contracts with no governance or admin keys, backing in ETH only, and permissionless redemption at face value that enforces the peg mechanically.
Can my Liquity position be redeemed against?+
Yes, if it is among the lowest-collateralised. Redemption targets the riskiest positions first, so keeping a buffer above the minimum ratio is important.
Why is LUSD not larger?+
Immutability means no new collateral types or parameter changes, which limits what can be built around it. Safety and flexibility trade against each other.
Does Liquity charge interest?+
v1 charges a one-time borrowing fee rather than ongoing interest, which suits long-duration borrowing.
