MakerDAO that lets Uniswap liquidity providers borrow up to 90% of their LP tokens’ value in USDFL stablecoins. The zero risks of liquidation for stablecoin pairs and the ability to convert USDFL into Tether (USDT) or USD Coin (USDC) to increase one’s liquidity position on Uniswap make Freeliquid an attractive alternative to Compound and Aave.
The problem of idle Uniswap LP tokens
The issue of using Uniswap LP tokens more efficiently has been on DeFi investors’ radar for a long time. The standard method is yield farming — depositing LPs in a smart contract to earn tokens. However, it has discredited itself after too many farming tokens collapsed due to hyperinflation.
A much more sustainable way is to use LP tokens as collateral to get loans for them. Some lending protocols have already implemented this feature but in a limited way. For instance, Aave allows the use of only a few types of Uni V1 tokens, and the Loan-to-Value ratio is low. Other platforms require a higher collateralization ratio than offered on Freeliquid or still entail a risk of liquidation.
Freeliquid: the first lending protocol to offer 90% LTV in stablecoins on collateral in Uniswap LPs
Freeliquid is a MakerDAO fork launched in December 2020, designed to maximize the capital efficiency of Uniswap LP tokens. The protocol has successfully passed an audit by Beosin Blockchain Security and has several major advantages over other lending protocols:
- Loan-to-Value ratio reaches 90% when using Uniswap LP tokens as collateral (based on the value of the underlying assets locked on Uniswap);
- All loans are issued in the platform's native ERC-20 stablecoin USDFL, soft-pegged to the United States dollar.
- No risk of liquidation for stablecoin pools provided as collateral. In fact, the liquidation module has been completely switched off for these pairs.
- Supports LP tokens for pairs consisting of Dai, USDT, USDC and Neutrino USD (USDN) pools on Uniswap. More pairs can be added later through community voting.
- Borrowed USDFL can be used to add more liquidity to Uniswap to generate additional fee income.
- Alternatively, users can lock their USDFL in Freeliquid Save to earn a regular interest. No USDFL inflation will result from this.
Using repeated USDFL borrowing to maximize income on Uniswap
The most attractive feature of Freeliquid is the possibility of repeated locking and borrowing. Once a user borrows USDFL through Freeliquid Borrow, they can convert them into USDT or USDC and lock them on Uniswap again. This will result in increased income thanks to liquidity provider fees — and more Uniswap LP tokens. These LP tokens can be added as collateral on Freeliquid to get a new loan in USDFL, for example — as many times as the user wishes. Every iteration will increase their trading fee income on Uniswap.
In the spring of 2021, Freeliquid is planning to add support for Curve LP tokens, opening up the same opportunities for the liquidity providers on Curve Finance, which currently has over $4 billion locked in its pools.
FL governance token distribution
Apart from the USDFL stablecoin, Freeliquid also has its own governance token, FL, with a total supply of 1 million. There has been no initial coin offering or private sales. The whole supply of FL is currently being distributed using a Fair Launch model to all the users who add liquidity to USDFL pools on Uniswap.
Why choose Freeliquid?
While Freeliquid is not the first to accept Uniswap LPs as collateral, it is the first to offer a 90% LTV on such loans together with zero risks of liquidation. The repeated locking and borrowing feature is also an important advantage, which allows Uniswap liquidity providers to increase their income from fees by several times. To join the protocol and to get a loan in USDFL, visit https://freeliquid.io/.