Liquity V2 - ETH Stability Pool
Liquity V2 is a decentralized and immutable borrowing protocol that allows users to mint BOLD stablecoins using ETH, wstETH, or rETH as collateral. The ETH Stability Pool is where you can deposit BOLD to earn yield.
How the ETH Stability Pool works:
- You deposit BOLD into the ETH Stability Pool
- Your BOLD backs liquidations of ETH-collateralized positions
- You earn 75% of interest payments from ETH borrowers (paid in BOLD)
- When liquidations occur, your BOLD purchases ETH at a ~5% discount
- Yield is fully sustainable with no token emissions or lockups
- You can withdraw anytime - no lock-up period
Unlike Liquity V1, each collateral type (ETH, wstETH, rETH) has its own separate Stability Pool, allowing depositors to choose their risk exposure.
Difference between Liquity V1 and V2 stability pool designs
| Feature | Liquity V1 | Liquity V2 |
|---|---|---|
| Collateral | ETH only | ETH, wstETH, rETH (3 separate pools) |
| Stablecoin | LUSD | BOLD |
| Number of Pools | 1 single pool | 3 separate pools (one per collateral) |
| Yield Source | LQTY token emissions (inflation) | 75% of borrower interest (real yield) |
| Token Emissions | Yes - LQTY rewards | No emissions |
| Interest Rates | Fixed (0% borrowing fee model) | User-set variable rates |
| Liquidation Bonus | ~10% ETH discount | ~5% collateral discount |
| Revenue Distribution | LQTY stakers get fees | 75% to Stability Pool, 25% to protocol |
Basic Information
Fundamentals
TVL
APR
Statistics
| Weekly | Monthly | Quarterly | Yearly | |
|---|---|---|---|---|
| Period Start | N/A | N/A | N/A | N/A |
| Period End (inclusive) | N/A | N/A | N/A | N/A |
| APR | N/A | N/A | N/A | N/A |
| CAGR (APY) | N/A | N/A | N/A | N/A |
| TVL High | N/A | N/A | N/A | N/A |
| TVL Low | N/A | N/A | N/A | N/A |
Liquidity
Not calculated yet
Liquidity analysis will be available soon
Strategy
- Acquire BOLD stablecoin
- Buy BOLD on DEXs (Curve, Uniswap) or borrow BOLD by depositing collateral on Liquity V2
- BOLD is pegged to $1 USD through direct redeemability for underlying collateral
- BOLD is backed by ETH, wstETH, and rETH (overcollateralized)
- Deposit BOLD into the ETH Stability Pool
- Navigate to Liquity V2 "Earn" section
- Select the ETH Stability Pool (or wstETH/rETH pools for different exposure)
- Deposit your BOLD tokens
- No deposit fees apply
- Earn Interest Revenue (BOLD)
- 75% of all interest paid by ETH borrowers flows to the ETH Stability Pool
- Interest is paid out in BOLD tokens
- Yield is sustainable and scales with borrowing demand
- Receive Liquidation Proceeds (ETH)
- When under-collateralized positions are liquidated, your BOLD purchases their ETH
- You receive ETH at approximately a 5% discount to market price
- Your BOLD balance decreases while you gain ETH exposure
- Withdraw anytime
- No lock-up period - instant liquidity
- Withdraw your BOLD plus any accumulated ETH from liquidations
- No withdrawal fees
Yield Source
Interest Revenue (75% to Stability Pool)
Borrowers in Liquity V2 set their own interest rates when taking out loans. 75% of all interest paid by borrowers in a given collateral market flows directly to that market's Stability Pool depositors.
This creates a "yield amplification" effect: if less than 75% of BOLD supply is deposited in Stability Pools, effective yields can exceed average borrow rates.
Liquidation Proceeds (~5% Discount)
When borrower positions become under-collateralized and are liquidated, Stability Pool depositors' BOLD is used to purchase the collateral at approximately a 5% discount to market price.
This converts some of your BOLD into ETH at a favorable rate. The discount compensates for taking on the liquidated collateral and potential price volatility.
No Token Emissions
Unlike Liquity V1 which distributed LQTY tokens, Liquity V2 has no governance token emissions. All yield comes from real protocol revenue - borrower interest and liquidation proceeds.
Strategy Limits
Deterministic Constraints
- Yield depends on borrowing demand - if fewer people borrow ETH, less interest flows to the pool
- BOLD must maintain its peg for the strategy to hold value
- Available only on Ethereum mainnet
- Each pool is isolated: ETH SP only backs ETH-collateralized positions
Probabilistic Constraints
- Liquidation frequency depends on ETH price volatility
- After liquidations, your portfolio includes ETH which adds price exposure
- BOLD peg stability depends on redemption mechanism and market conditions
- Protocol launched January 2025 — ~16 months of operating history, still moderate by DeFi standards
Underlying Assets/Allocations
Risk Analysis
Potential Risks
Based on the official Liquity V2 risk disclosure:
- BOLD Depeg Risk - If collateral crashes severely, BOLD could become partially unbacked and depeg. In worst case, remaining debt-backed BOLD could be fully redeemed, potentially reducing BOLD's value significantly
- Oracle Failure Risk - Chainlink oracle failures or stale prices could lead to unfavorable redemptions or delayed liquidations. Protocol has automatic shutdown if prices aren't updated within preset periods
- Liquidation Losses - During oracle lags or flash crashes, liquidation gains could turn into losses if collateral price drops further after you receive it
- Smart Contract Risk - Despite audits, vulnerabilities could exist. The February 2025 Stability Pool issue demonstrates this risk
- ETH Price Exposure - After liquidations, you hold ETH which introduces price volatility to your portfolio
- Cross-Collateral Risk - BOLD is backed by ETH, wstETH, and rETH. Issues with any collateral type affect all BOLD holders
- Low Yield Risk - If borrowing demand is low, interest revenue to the Stability Pool decreases
Risk Analysis (3rd Parties)
Summary
The Liquity V2 ETH Stability Pool offers sustainable yield from real protocol revenue - borrower interest and liquidation proceeds. The governance-free, immutable design reduces centralization risks, and BOLD achieved a strong A- rating from Bluechip. However, the protocol is still relatively young (launched January 2025; redeployed May 2025 after a Stability Pool vulnerability — no funds lost), with a track record now spanning roughly 16 months. Key considerations include BOLD peg stability, cross-collateral exposure, and ETH price risk from liquidation proceeds.
Protocol Design: Liquity V2 is immutable and governance-free, inheriting the proven design principles from Liquity V1. The protocol has no admin keys and cannot be upgraded, reducing governance attack vectors.
Security Audits: Liquity V2 was audited by DeDaub and ChainSecurity with multiple rounds of review covering both core protocol and governance modules.
Bluechip A- Rating: BOLD stablecoin achieved an A- rating from Bluechip, surpassing USDC and DAI due to stronger decentralization and crypto-native design.
New Protocol: Liquity V2 launched in January 2025 and has limited operational history. The protocol discovered a Stability Pool vulnerability in February 2025. No funds were lost. After a 5-week audit contest and re-audits by ChainSecurity and Dedaub, a patched version was redeployed on May 19, 2025.
Multi-Collateral Exposure: While you deposit to a specific pool (ETH), all BOLD holders remain exposed to the health of all collateral types (ETH, wstETH, rETH) since BOLD is backed by all three.