Freeliquid Protocol – a Platform to Support Liquidity Pools as Collaterals
The largest event in the crypto space of 2020 has been the emergence of DeFi, providing solutions and access to financial services for everyone. Among many services that DeFi offers, lending crypto assets has become one of the major sectors of the industry. A new player on the market, the Freeliquid Protocol, offers loans in USD stablecoins for providing stablecoin liquidity pools as collateral. This set up to be a major breakthrough, since supporting stablecoins as security for the loan guarantees safety both for the lending service and the borrowers.
Freeliquid Protocol Overview
Freeliquid Protocol was launched on 21 December 2020. Being an open-source platform built on the Ethereum blockchain, it is a fork of MakerDAO, another well-trusted lending service. Similar to Maker, Freeliquid has two native tokens: the USD stablecoin USDFL and the governance token FL. There are three main components of Freeliquid: Borrow, Reward, and Save, which are all accessible through their web app at freeliquid.io.
The USD Freeliquid (USDFL) is an ERC-20 stablecoin that is soft pegged to one US dollar and backed by user-provided collaterals. It is the main currency of the protocol and serves as a medium of exchange and an efficient store of value with a stable market price. It is easy to hold as well as transfer using cryptocurrency wallets. Like many other ERC-20 tokens, it is tradeable on decentralized exchanges as well.
The Freeliquid Borrow allows users to lock their crypto assets in the form of liquidity pools as collateral to borrow USDFL stablecoins. It is done by setting up Freeliquid Vaults, which are smart contracts that generate USDFL after users lock their collaterals in Freeliquid Borrow and issue a loan. At the moment, Freeliquid Borrow supports Uniswap pools consisting of the following stablecoins: USDT, USDC, DAI, and USDN. More collateral types and platforms can be added later if the community approves them through the voting.
Users have the ability to borrow USDFL up to 90% of the collateralized asset value. The loans do not require a third-party approval and users are not bound by any date until which the repayment has to be made. Loans can be issued and covered instantly and at any time.
The received funds in USDFL are in full control of users and can be traded freely. For example, this might include creating another pool on Uniswap, almost doubling the original passive income from liquidity fees.
Freeliquid Save is a savings program that earns interest for USDFL holders. Users can lock their USDFL in Freeliquid Save and receive constant payments, also in USDFL, accrued to their balance. The funding for Freeliquid Save comes from the interest charged for the loans in Freeliquid Borrow, so there is no inflation of USDFL involved. The user balance is updated constantly and can be claimed all at once for the whole past period. Similar to Freeliquid Borrow, the USDFL tokens can be locked and unlocked with no penalties .
FL is the governance token of the platform and its holders can participate in the governance of the project through voting. The token can be easily stored and transferred to any ERC-20 wallet. During the first three months of Freeliquid, users are rewarded for providing liquidity pools for the USDFL-FL pair.
FL token distribution
The FL distribution is based on the Fair Launch model that ensures an even distribution of tokens. There has been no ICO or private sale of FL, instead, the governance tokens will be distributed to users that support liquidity of the native Freeliquid tokens. The four reward programs are as follows:
Day 1 to 10, an allocation of 100,000 FL – In the first 10 days, 100,000 FL will be distributed to users who lock their liquidity pools with any pair consisting of the following stablecoins: USDT, USDC, DAI, USDN. The rewards will be based on the user’s share in the total value of assets locked on Freeliquid Borrow.
Day 11 to 100, an allocation of 400,000 FL– the second program rewards users that support liquidity of the FL token. Rewards are distributed to users who add to the USDFL-FL liquidity pair on Uniswap and lock their LP tokens in Freeliquid Reward.
Day 11 to 381, an allocation of 450,000 FL – the third program rewards users that support liquidity of the USDFL token. Rewards are distributed to users who add to the USDFL liquidity pairs with stablecoins on Uniswap and lock their LP tokens in Freeliquid Reward.
Day 1 to 712, an allocation of 50,000 FL – the fourth program will run for 712 days and incentivize the use of Oracles for price updates (i.e., the Oracles transaction initiators).
Advantages of the Freeliquid Protocol
- The protocol allows the users to get USD stablecoins by locking liquidity pools as collaterals. This allows investors to get access to additional funding and to increase the size of the existing liquidity pools. The funds can also be used for several other purposes including trading and yield farming. Effectively, users can turn their liquidity pools into sources of extra funding, increasing their profits with almost no risk.
- Support of stablecoin pools (as opposed to volatile crypto assets) has another two major advantages. First, it enables to issue a high amount of funds (up to 90%) for the collateral provided. Second, there is no risk of a liquidation of the user position – the value of security always stays above the liquidation threshold. For this reason, the liquidation module of the Freeliquid Protocol is completely switched off for stablecoin pairs.
- The FL governance token being issued through the Fair Launch model. This prevents anyone from accumulating large positions FL tokens, potentially outvoting the rest of the community or selling them at once, resulting in a sudden price fall of FL.
- The project will grow together with the DeFi market as more liquidity pairs and platforms are supported on Freeliquid.
- The use of Freeliquid is completely anonymous. Everyone can fully access Freeliquid by simply connecting a personal Ethereum wallet. There is no need to register with an email or go through the KYC process.
- The smart contracts of the Freeliquid Protocol has been recently audited by Beosin Blockchain Security, one of the leading auditing companies on the crypto market. The audit has been successfully passed on all items.
Stablecoin liquidity pools offer a great source of passive income with minimal risks to its holders. They also represent a perfect security, since lenders can be sure that the value of the collateral provided is not going to drop down significantly. However, no lending platforms so far have been supporting them as collateral – until Freeliquid. By using the Freeliquid Protocol, liquidity providers can now take advantage of their assets. They simultaneously keep the passive income from liquidity fees and receive funding for their free usage – a great deal that is rare to see.