Liqwid is non-custodial liquidity protocol for lending and borrowing Cardano native assets. Users participate in the protocol as lenders or borrowers. 

Lenders supply liquidity to a market to earn interest on deposits, borrowers are able to open perpetual loans in an over-collateralized manner. 

This course contains important resources on Liqwid to fully understand the protocol's core components.

This next section describes how to successfully complete market actions in the app and explains how to safely navigate the app as a borrower. 

What is Liqwid Finance

Once you have your wallet connected to the Liqwid app interface with wallet collateral set, you’re ready to lend ADA, DJED and other Cardano native assets. 

Earning interest using Liqwid as a lender is as simple as supplying assets to a Liqwid Market and minting qTokens, an interest bearing token that represents your deposit amount and accrued interest. 

As borrowers repay accrued interest in that market the qToken to underlying asset exchange rate will increase, representing the repaid interest. This is the increased amount of underlying assets qToken holders earn.

Cardano transaction costs must be paid using ADA and your wallet’s collateral must be set to interact with the app interface. 

You will need to ensure enough ADA remains in your wallet after a market action to pay for the transaction fees set by the Cardano network.

## How to supply assets

To supply assets follow these steps!

1. Visit the app at [app.liqwid.finance](https://app.liqwid.finance/), connect your wallet, and navigate to the “Assets to supply” section.
2. Select an asset to supply and click the "Supply" button.
3. Enter the amount you want to supply in the "Amount" input field at the top of the modal. You can either enter a specific amount or select the ‘MAX’ button to supply your entire wallet’s balance.
4. Once you have entered the supply amount and reviewed the “Transaction overview” section click the “Supply” button at the bottom of the modal and approve the transaction in your wallet.

Once you successfully complete the supply action a transaction overview will appear displaying your completed action. You can click the “Review transaction details” button to view the transaction hash and details on Cardano block explorer cexplorer.io and you can confirm your minted qADA by viewing the token list section in your wallet. You can also access all your historical transactions under the “Transaction history” page within Liqwid app.

## Things to note

- Users can view the current supply APY representing the interest suppliers (qToken holders) are currently earning annualized.
- You can review the current qADA exchange rate and supply APY to confirm how much qADA will be minted in your wallet and the current APY you will begin earning.
- You can view your supplied assets, the current APY, and the amount of supplied assets locked as collateral in the “Your supplies” section.

Supplying Assets

The Liqwid protocol allows users to borrow assets once you have supplied one of the assets community governance has allowed to be used as collateral. 

The overcollateralized loans accrue a variable interest rate based on the market’s current borrow demand (that is the ratio of borrowed assets vs supplied, e.g. if 100 ADA is supplied to a market and 50 is borrowed the market has a 50% utilization ratio). 

**Borrowers must keep their Loan-to-Value (LTV) beneath the maxLTV (maximum borrowing power) to avoid risking liquidations**.

The mainnet Liqwid ADA and DJED market’s both have a maxLTV of 75% (133% minimum collateral ratio). Every assets has its own market parameters listed under the page “Market State” within the Liqwid app.

## How to borrow assets

1. Visit the app at https://app.liqwid.finance/, connect your wallet, and navigate to the “Assets to borrow” section.
2. Click on the “Borrow” button for the asset you want to borrow, or on the “Borrow” button from an existing loan position.
3. Input the amount you want to borrow in the “Amount” input field at the top of the modal.
4. Enter a specific collateral amount in the “Collateral distribution” input field or click the “MAX” button to deposit your entire qToken balance as collateral. 
5. After reviewing the borrow action details click the “Borrow” button at the bottom of the modal. Once the transaction completes you will receive the borrowed assets in your wallet

## Things to note

- Entering a borrow amount in the “Amount” input field will modify your health factor. In addition, you can also in the same transaction modal increase or reduce your collateral amount in the “Collateral distribution” input field to change the locked collateral in your loan position.
- The total amount you can borrow depends on the collateral value for the assets you have supplied and the available liquidity in the market you are borrowing from.

Borrowing Assets

## What is the loan Health Factor

The health factor is a number which calculates the safety of your collateral assets compared to your borrowed assets based on USD value. 

A larger health factor represents a safer loan, your collateral assets are more secure from a liquidation event the higher your health factor is. 

If your loan's health factor goes to 1 or below, the liquidation of your collateral assets will be enabled. 

For a health factor of 2, the collateral USD value can reduce by 50% against the borrow USD value. 

Your loan's health factor is based on the liquidation threshold of your collateral assets and the collateral USD value versus the USD value of your borrowed assets. 

What is a loan Health Factor?

## Increase or reduce your collateral

You can modify your collateral by clicking the “Modify” button, increasing or reducing the amount in the “Collateral distribution” section’s input field and completing an action. You can also add to your loan position any other qTokens that you have previously supplied.

To unlock or modify collateral follow these steps!

1. Click the Modify modal of your loan position you want to change.
2. Enter an amount to modify the input field at the top of the modal or click the “MAX” button to add your entire wallet’s balance.
3. You can select or type the name of an additional qTokens you want to add to your loan position.
4. Once you have reviewed the action details in the “Transaction overview” section, click “Modify” and approve the transaction in your wallet.

Modifying Collateral

## How to repay a loan

The Liqwid protocol enables you to fully or partially repay your loans on demand. You can also modify your loan’s collateral distribution during repayment if you wish to add or reduce collateral (see section above).

To repay loans and modify collateral follow these steps!

1. Visit https://app.liqwid.finance/, connect your wallet, and click on the "Repay" button via the “Your borrows” table on the right.
2. Enter the amount you wish to repay in the input field or click the “MAX” button to repay your entire wallet’s balance (if you possess enough qTokens).
3. Once you have reviewed the borrow action details in the “Transaction overview” section, click “Repay” and approve the transaction in your wallet. 

## Things to note

- The remaining debt cannot be less than 100 tokens (set to be the minimal debt amount for any loan position on the Liqwid protocol
- Once you are initiating a repayment, the “Collateral distribution” modal will blur out, and you can only remove debt through this action. 
- Review the changes to your loan’s Health factor and remaining debt in the Transaction overview section. Be sure to maintain a strong Health factor above 1.067 to avoid collateral liquidation risk.

Repaying a Loan

## Withdrawing Assets

Liqwid allows you to supply and withdraw your assets from the protocol at any time. When you supply ADA you mint qADA at the current exchange rate and when you redeem qADA you burn it and withdraw your supplied ADA back into your wallet.

To redeem qTokens and withdraw assets from the protocol follow these steps!

1. Visit https://app.liqwid.finance/, connect your wallet, and click on the "Withdraw" button via the “Your supplies” table on the left.
2. Enter the amount of assets you want to withdraw from the market in the “Amount” input field. You can withdraw all assets supplied by pressing the “MAX” button next to the wallet balance in the Amount input field.
3. Review the “Transaction overview” section to see the current qADA exchange rate you are redeeming at to calculate the total amount of ADA you are receiving as interest (the increase in the qADA exchange rate from when you initially supply to when you withdraw represents your accrued interest).
4. Once you have reviewed the withdrawal action transaction details click the “Withdraw” button at the bottom of the modal and approve the transaction in your wallet.

## Things to note

- The total amount of assets you may withdraw depends on the amount of your supplied assets you have locked as collateral and the market’s current liquidity.
- To view the transaction hash and details on cexplorer.io click the “Review transaction details” button. You can also access all your historical transactions under the “Transaction history” page within Liqwid app.

Withdrawing Assets

## What is the advantage of borrowing instead of selling my assets?

When you sell your assets you close out your position on that specific asset. If you have long term crypto holdings or are long on the asset, you would forfeit all potential value appreciation. When you instead borrow you are able to access liquidity without selling your assets. Most users complete borrows to access working capital and leverage their holdings.

## How much can I borrow?

The maximum amount you can borrow depends on the total value of your supplied asset(s), and the Borrow market’s current liquidity. You can't borrow an asset if the current liquidity is less than the amount you want to borrow from the market. Similarly if your loan's health factor is too low you won't be able to complete the borrow transaction. You can review each asset supported as collateral on Liqwid v1 and its specific risk parameters for borrowing in the “Market State” page within the Liqwid app.

## What happens if my health factor is reduced?

Based on the change in USD value for your supplied assets against the change in USD value for your borrowed assets, your loan's health factor will move up or down. If your loan's health factor increases, it will improve your collateral asset's safety by moving the liquidation threshold further out from being triggered. If the USD value of your collateral assets decrease versus the USD value of your borrowed, your loan's health factor is also decreased, this would reduce your collateral asset's safety by increasing the risk of reaching the liquidation threshold.

## When do I need to repay my borrowed assets?

Borrow positions are perpetual in Liqwid meaning there is no fixed time period where you must repay the loan. If your position is secure (health factor > 1), you can borrow for as long of a time period as you want. The accrued interest on your loan will increase over time causing your remaining borrowable amount to decrease. This could result in increasing the possibility of reaching the liquidation threshold.

## How much would I pay in interest?

The interest rate you pay on your loan(s) is based on the borrowing rate which is calculated from the current supply and demand ratio of the borrowed asset (called Market Utilization). Additionally the variable rates update continuously as supply and borrow actions are processed in a market, impacting the total you would pay in interest. In the Dashboard section of the app the current borrowing rate for each market will be displayed in the Assets to Borrow section.

You must repay your full loan in the asset you borrowed. For example, if you borrow 100 ADA you will pay back 100 ADA + interest accrued when you repay the loan.

Currently Liqwid only supports variable rate borrowing. The variable rate is the interest rate based on the supplied asset to borrow demand in a Liqwid market.

## How do I avoid liquidation?

Maintaining a strong health factor (above 2) helps avoid risk of reaching the liquidation threshold that would trigger a collateral liquidations. You can do this by repaying your loan or depositing more collateral assets in your loan position to increase your health factor. Of these two available options to safely manage your borrow position, repaying the loan would increase your health factor more (since each USD repaid increases your health factor 1:1 but each USD supplied increases your health factor 1 USD x the collateral factor of the asset).

Some Common Questions

How to Use and Earn with Liqwid

## LQ, the Liqwid DAO Token

LQ acts as the governance mechanism for on-chain community management of the Liqwid protocol. 

LQ is used to propose, vote on, and implement upgrades based on the results of Liqwid Improvement Proposals (LIPs). 

Besides community governance, LQ can be staked in the protocol's Safety Pool (SP) to offer security and insurance to the protocol and suppliers. 

LQ stakers receive staking rewards and earn a 10% portion of the interest fees paid by borrowers of all Liqwid Money Markets.

What is the Liqwid DAO Token (LQ)?

## Overview

LQ token holders can “stake” their LQ using the LiqwidDAO’s Agora staking module. LQ staking provides both governance and economic rights, and is a key mechanism used to ensure stability of the protocol.

When LQ is staked, it is sent into a non-custodial smart contract that tracks how much LQ has been staked, the owner of the stake, any “locks” that exist on the stake (which prevent increasing or decreasing the amount of LQ held in the stake UTxO), and whether the stake has been “delegated” (described below). 

Locked stakes can be unlocked at any time except in a 45 minute period immediately after voting, and unlocked stakes can be withdrawn at any time. There are no long term “cool down” periods (at the smart contract level) where a user’s LQ will be inaccessible.

A user can have multiple stakes. For example, if Alice had 100 LQ in her wallet, she could lock 40 LQ in one stake and 60 LQ in another stake. This allows the stakes to be used independently, as described below.

Stakes can also be modified, provided that no “locks” exist on the stake. A stake modifying transaction allows the user to add or remove LQ from an existing stake rather than creating a new stake.

## Using the LQ Staking module

The staking module is accessible at https://app.liqwid.finance/staking. This module allows a user to create, modify, or delete a stake, as well as see their available in-wallet LQ balance, the balance associated with their stakes, and which proposals (if any) have are locking each stake.

## Voting

A single LQ stake can be used to vote on multiple proposals. When a stake is used to vote on a proposal, a “lock” is added to the stake UTxO’s datum. A locked stake is unable to be modified; the amount of LQ held in the stake must remain at it’s current value. To unlock the stake, the stake owner must withdraw their votes from any proposals that are locking the stake. “Unlocking” a stake thus requires one or more wallet signatures, and is therefore a manual user action. 

## LQ staking rewards

All LQ stakes will accrue rewards on a monthly basis. Longer-term staking yields increases the APR earned. There is no option in the UI to select whether to lock “short-term” or “long-term”; our rewards calculations track this automatically.

The current APR thresholds (as of 2023-04-28, following the vote on [proposal 0](https://app.liqwid.finance/governance/proposal/0)) are as follows:

## Lifetime of Stake and APR

0-6months : 5%, 7-12 months : 30%,  12+ months : 50%

## Interest Income for LQ stakers via the fee switch

The “Fee Switch” is a mechanism in the Liqwid protocol that allows LQ stakers to earn a configurable percentage of the interest generated in each market. When the fee switch is active, an individual stake’s allocation of interest income is proportional to their share of the total amount of LQ staked.

The percentage of the total interest income that is paid to LQ stakers is configurable on a per-market basis and can be changed by governance.

## Do my LQ stake rewards compound into my existing LQ stake(s)?

LQ stakes do not compound automatically. 

Because LQ stakes are also used for voting, every deposit or withdrawal into an LQ stake requires a signature from its owner; otherwise, third-parties would be able to modify the voting weight of stakes they do not own. 

Users can manually compound their rewards. To do so, a user would first claim their rewards and then either create a new stake or deposit into an existing, unlocked stake.

LQ staking

If a user increases their stake, the increased component will start a new “clock”. 

For example, if Alice stakes 1 LQ today and adds 9 LQ in 3 months, her APRs will be as follows:

- 5% on 1 LQ for months 1 through 3
- 5% on 10 LQ for months 3 through 6
- 30% on 1 LQ and 5% on 9 LQ for months 6 through 9
- 30% on 10 LQ for months 9 through 12
- 50% on 1 LQ, 30% on 9 LQ for months 12 through 15
- 50% on 10 LQ for months 15+

Example: Increasing Stake

Staking rewards are calculated off-chain using a “last in, first out” approach. 

If a user withdraws part of their stake, it will decrease their **youngest** stake. For example, if Alice stakes 5 LQ today, adds 4 LQ in 3 months, and removes 2 LQ in 4 months, her APRs will be:

- 5% on 5 LQ for months 1 through 3
- 5% on 9 LQ for month 4
- 5% on 7 LQ for months 5 and 6
- 30% on 5 LQ and 5% on 2 LQ for months 6 through 9
- 30% on 7 LQ for months 9 through 12
- 50% on 5 LQ, 30% on 2 LQ for months 12 through 15
- 50% on 7 LQ for months 15+

In this case, the 2 LQ that was removed in month 4 was subtracted from the sub-stake that was added on month three, not the original sub-stake added on the first day.

Example: Increasing and Decreasing Stake

The LQ Token & Staking

## Aquafarmer Staking Boost

If an Aquafarmer NFT is associated a stake, the stake’s “effective LQ balance” is increased when calculating staking rewards. 

This means that if a stake has 100 LQ and is eligible for a 4% boost, any calculations related to staking rewards or the fee switch would be calculated at an “effective balance” of 104 LQ. These boost do not apply for voting or delegation purposes.

The current (as of 2023-07-29) Aquafarmer boosts based on the "Tier" are:
- Common = 4%
- Rare = 6%
- Super Rare = 8%
- Legendary = 10%

The rewards calculation will only apply a boost for the single rarest Aquaframer associated with the stake; multiple Aquafarmers do not lead to a cumulative boost. 

Aquafarmer Staking Boost

## How is an Aquafarmer NFT associated with an LQ stake position?

LQ stake positions track a payment key hash to determine who owns the stake. For an Aquafarmer NFT to be associated with the stake, it must be contained in a UTxO at an address with the exact same payment key hash.

The easiest way to ensure that your Aquafarmer is correctly associated with your stake is to use a single-address wallet. Our recommended wallet is [Eternl](https://eternl.io/) in single-address mode. The LQ staking UI will indicate the rarity of the Aquafarmer found in your wallet.

If you found this course helpful, you may find my [Cardano DeFi Strategies](https://worked.dev/courses/cardano-defi-strategies) course helpful as it includes some strategies which can earn a yield with Liqwid.

How to: Liqwid Finance

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