On Monday, the native token of Liquidity ‘s censorship-resistant decentralized stablecoin lender (LQTY) experienced a 45% surge to its six-month high of $1.07 following an instruction from New York regulators for Paxos to stop minting their centralized dollar-pegged cryptocurrency BUSD. This was LQTY’s most significant single-day percentage gain in at least one year and highlighted the incredible potential that this crypto holds, according to data sourced from the TradingView charting platform.
Liquidity ‘s Rise Could Be Due to US Regulators’ Attitude to Paxos
The rally is likely a result of the Paxos-BUSD drama that sparked worries about potential government regulations on all centralized stablecoin systems, such as Circle’s USDC, and highlighted the importance of decentralized and uncensored stablecoins like Liquity’s LUSD.
BUSD evidences the necessity of decentralized, censorship-resistant stablecoins – a mission that both Maker and Liquity’s LUSD are actively pursuing. According to its Endgame Plan, Maker is preparing for any potential regulatory crackdown on crypto by making DAI completely uncensorable. Similarly, LUSD presents an alternate approach towards achieving this goal with minimal governance and ETH as its sole backing asset – something that DeFi researcher Ignas emphasized in his discussion with CoinDesk.
Liquity is an Ethereum-based protocol that provides interest-free loans in the form of a dollar-pegged stablecoin, LUSD. These loans come with 110% ether (ETH) collateral and a small loan generation fee. Redemption and issuance fees are calculated algorithmically to ensure system solvency. In addition, this protocol offers LQTY reward tokens for users, frontends, and stability providers as incentives for their participation.
According to Decentral Park Capital portfolio manager Lewis Harland, the market perceives LUSD backed by ETH collateral as more resilient against regulatory interventions.
Despite the Bias After Terra’s Collapse, Stablecoin Market Rises
The renewed preference for crypto-backed stablecoins indicates the quickly transforming narratives in the cryptocurrency market. In May last year, these coins had lost favor after UST, Terra’s algorithmic decentralized stablecoin, experienced a dramatic crash. On Monday, LQTY skyrocketed by 40%, MKR rose by 12%, and Tron’s TRX shot up by 3%. Last year saw Tron – supposedly preserving genuine decentralization and resistance to censorship – introduce USDD, its own dollar-pegged decentralized stablecoin.
Crypto Twitter believes that if regulatory pressures on centralized dollar-pegged coins continue to grow, Liquity and other protocols offering decentralized stablecoins will flourish. One DeFi investor tweeted: “I’m confident $LUSD will reach a market cap of 1 billion once again, especially with Gensler’s reckless behavior. I think my best bet for mid-term gains is investing in $LQTY.”
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