We strongly recommend that every user studies Liquity Protocol carefully before using PolyQuity platform. You can directly read the official Liquity documentation and find more details, or join our community to discuss it.
PolyQuity a friendly fork of theLiquity which is a decentralized borrowing protocol on Ethereum. Therefore, we will quote the official content to introduce how it works. You can also directly check the official documentation for more details.
How does PolyQuity work?
PolyQuity is a fork of the Liquity protocol in the Polygon network, so it works in the same way as Liquity, and you can refer to the official document of Liquity for more information.
What are the main use cases of PolyQuity?
Borrow PUSD against Matic by opening a Trove
Secure PolyQuity by providing PUSD to the Stability Pool in exchange for rewards
Stake PYQ to earn the fee revenue paid for borrowing ，redeeming PUSD and PYQ transfer fee.
Redeem 1 PUSD for 1 USD worth of Matic when the PUSD peg falls below $1
What are PUSD and PYQ?
PUSD is the USD-pegged stablecoin used to pay out loans on the PolyQuity protocol. At any time it can be redeemed against the underlying collateral at face value. Learn more about the stability mechanism.
PYQ is the secondary token issued by PolyQuity. It captures the fee revenue that is generated by the system and incentivizes early adopters and frontends. The total PYQ supply is capped at 1,000,000,000 tokens.
Does PolyQuity charge any fees?
There is a one-off fee whenever PUSD is borrowed, and when PUSD is redeemed:
For borrowers, there is a borrowing fee on loans as a percentage of the drawn amount (in PUSD).
For redeemers, there is a redemption fee on the amount paid to users by the system (in Matic) when exchanging PUSD for Matic. Note that redemption is separate from repaying your loan as a borrower, which is free of charge.
Both fees depend on the redemption volumes, i.e. they increase upon every redemption in function of the redeemed amount, and decay over time as long as no redemptions take place. The intent is to throttle large redemptions with higher fees, and to throttle borrowing directly after large redemption volumes. The fee decay over time ensures that the fee for both borrowers and redeemers will “cool down”, while redemptions volumes are low.
The fees cannot become smaller than 0.5% (except in Recovery Mode), which protects the redemption facility from being misused by arbitrageurs front-running the price feed. The borrowing fee is capped at 5%, keeping the system (somewhat) attractive for borrowers even in phases where the monetary is contracting due to redemptions. Other than that, the two fees are identical and are depicted as "Fee" in the following exemplary chart:
How can I earn money using PolyQuity?
There are two different ways to generate revenue using PolyQuity:
Deposit PUSD to the Stability Pool and earn liquidation gains (in Matic) and PYQ rewards.
Stake PYQ and earn PUSD , Matic and PYQ revenue from borrowing fees, redemption fees and PYQ transfer fees.
Can I lose my funds?
As a non-custodial system, all the tokens sent to the protocol will be held and managed algorithmically without the interference of any person or legal entity. That means your funds will only be subject to the rules set forth in the smart contract code.
There are two scenarios under which you may lose a part of your funds:
You are a borrower (Trove owner) and your collateral in Matic is liquidated. You will still keep your borrowed PUSD, but your Trove will be closed and your collateral will be used to compensate Stability Pool depositors.
You are a Stability Pool depositor and your deposited PUSD is used to repay debt from liquidated borrowers. Since liquidations are triggered any time borrowers’ collateral drops below 110%, you will receive more Matic in return with a very high probability. However, if Matic decreases in price and you maintain exposure, you may lose value in your total pool deposits.
Please note that a hack or a bug that results in losses for the users can never be fully excluded.