Liquity, a decentralized lending protocol, has seen its utility token, LQTY, surge by over 75% up to now 30 days regardless of a sluggish market, which could be largely attributed to an arbitrage alternative stemming from MakerDAO’s DAI Financial savings Fee (DSR).

MakerDAO provides a 5% APR on DAI deposits. Merchants have been benefiting from this by minting Liquity’s LUSD stablecoin in opposition to ETH by paying a one-time borrowing payment of 0.5% and subsequently promoting LUSD for DAI, which is then deposited into the DSR module.

As merchants promote LUSD, pushing it beneath its $1 peg, arbitrage bots step in to buy the discounted LUSD and use it to redeem $1 price of ETH from the Liquity protocol. This maintains LUSD’s greenback peg.

Over the previous month, greater than $625,000 has been distributed to LQTY stakers, who obtain all of the borrowing and redemption charges generated by the protocol, a Liquity spokesperson informed The Defiant.

In its upcoming V2 iteration, Liquity goals to scale up in a bid to resolve the stablecoin trilemma – combining stability, capital effectivity, and decentralization.

The group plans to introduce two new options – principal safety and a secondary market. Principal safety permits customers to hedge their threat throughout market volatility by paying a premium for opening hedging positions, which could be offered for the principal quantity.

The secondary market permits customers to purchase and promote their hedging positions, lowering the danger of a financial institution run on the system. If a place stays unsold inside a specified timeframe, the protocol makes use of the collected premium to subsidize and entice potential consumers.

Liquity V2 is predicted to launch in Q2 2024.