Question 1

What is LQTY?

Accepted Answer

LQTY is the secondary token issued by the Liquity protocol. Its role must be distinguished by version: in Liquity V1, LQTY can be staked to earn fees generated by protocol borrowing and LUSD redemptions; in Liquity V2, staking LQTY also grants voting rights over liquidity-incentive initiatives, while continuing to earn V1 LUSD and ETH fee rewards. Therefore, LQTY's in-protocol utility comes from predefined reward and voting mechanisms, rather than a claim on Liquity AG or any other third party.

Question 2

What does staking LQTY do in Liquity V1?

Accepted Answer

In Liquity V1, staking LQTY lets users share borrowing fees and LUSD redemption fees generated by the system in proportion to their stake, with rewards accruing in LUSD and ETH. Fees must first be generated by actual borrowing or redemption activity before being distributed among all LQTY stakers, so both the staked amount and actual protocol fees affect the amount that can be received. LQTY itself can also be earned through specific V1 participation activities: depositing LUSD into the Stability Pool, assisting those deposits through a frontend, or providing liquidity to the LUSD:ETH Uniswap pool. Earning LQTY and staking already held LQTY to earn fees are two separate stages.

Question 3

What can LQTY participate in within V2?

Accepted Answer

In Liquity V2, staking LQTY allows users to vote on external initiatives supported by Protocol Incentivized Liquidity (PIL), expressing preferences for the allocation of liquidity incentives. Voting occurs weekly: it begins with the first Ethereum block after Thursday 00:00 UTC and ends with the final block on the following Wednesday at 23:59:59 UTC; choices from the previous round carry over into the next round unless the user changes them. Voting power is time-weighted: Voting Power = staked LQTY × stake age. In other words, with the same staked amount, a user who has staked for longer has greater voting power; newly added stake begins accumulating from 0 voting power. Votes can be split across multiple initiatives, and during the final 24 hours users may only vote against or reallocate votes to against.

Question 4

Can LQTY be withdrawn at any time after staking?

Accepted Answer

Yes. LQTY staking in Liquity V2 has no lock-up period, and users can withdraw at any time. The trade-off is that withdrawing forfeits the accumulated “extra” voting power; because voting power grows linearly with stake age, restaking or newly added amounts must begin accumulating again from a lower age. If a user only reduces an existing stake, the documentation states that the stake age of the remaining portion does not change; therefore, fully exiting, partially reducing, and adding new amounts do not have the same effect on voting power.

Question 5

How are LQTY supply and community issuance arranged?

Accepted Answer

LQTY has a maximum supply of 100,000,000 tokens. In Liquity V1, community issuance other than LP incentives and the Community Reserve follows an annual halving curve, with the documentation giving the cumulative function as 32,000,000 × (1 − 0.5^year), where year is the number of years elapsed. This function describes how a specific portion of community issuance accumulates over time, rather than predicting price or staking returns. The maximum supply alone also cannot indicate the circulating supply, market price, or fee income at a given time.

Question 6

Where does funding for Liquity V2 liquidity incentives come from?

Accepted Answer

V2's PIL directs 25% of protocol revenue to external incentive initiatives, aiming to improve BOLD liquidity and promote activity in the Liquity ecosystem. Its funding comes from BOLD interest continuously generated by Troves: as long as the system has active borrowers, all interest revenue is divided according to hardcoded proportions into 75% Stability Pool revenue and a 25% PIL budget. Stakers' votes determine preferences and weights for these external initiatives; this does not mean they directly own protocol revenue. Voters may also receive so-called bribes from external initiatives, but such payments come from those initiatives and should not be confused with V1 LUSD and ETH fee rewards.

Question 7

Does holding LQTY mean owning company equity?

Accepted Answer

No. Liquity V1 documentation explicitly states that LQTY's technical rewards are based on predefined protocol functionality rather than a claim against Liquity AG or any third party. LQTY holders may participate in fee distributions or V2 voting according to the rules, but these mechanisms do not make holders shareholders of a company.

Liquity (LQTY) Price