Liqwid is Integrating Chainlink Price Feeds Into Its Lending and Borrowing Protocol on Cardano
Our team is thrilled to announce that the Liqwid lending and borrowing protocol is integrating Chainlink Price Feeds on Cardano to help secure borrow limits, collateral values, and liquidations. Liqwid will utilize the ADA/USD Chainlink Price Feed during core protocol functions such as initiating loans, updating collateral asset value, and triggering liquidations of undercollateralized positions. Integrating Chainlink’s industry-leading oracle solution will help ensure that the price data referenced within Liqwid markets is accurate and tamper-proof, protecting users against price manipulation attacks and other outlier shocks.
Liqwid is a decentralized lending protocol on Cardano that allows users to securely earn interest on deposits and borrow assets with ease while earning yield on ADA from multiple revenue streams. Users can collateralize their supplied assets to initiate a loan in any asset supplied to the Liqwid protocol. Assets have varying maximum loan-to-value ratios termed collateral factors (e.g. 80 for ADA), and borrowers must ensure they remain under the collateral factor or their funds will be liquidated to protect the solvency of the protocol. In tandem with a user’s initial collateral, loans are secured by depositors in liquidation pools who supply assets to repay undercollateralized loans in exchange for seized collateral at a discount.
Efficient liquidation mechanisms are critical functionality for any DeFi lending protocol, especially during adverse market conditions. If the price of the liquidated collateral asset drops too fast, the debt may not get offset, and the protocol is at risk of becoming undercollateralized. The liquidation pool ensures that the assets borrowed from the protocol always remain fully backed by serving as the primary liquidity source for repaying debt from liquidated borrowers. If the liquidation pool for an asset is empty or is less than the total amount to be repaid, the protocol uses a secondary liquidation mechanism called the Safety Pool, where the Liqwid DAO Token (LQ) is redistributed to suppliers to offset undercollateralized positions. This dual-layer liquidation model helps ensure Liqwid markets remain solvent.
Liqwid implements an additional liquidation feature as a safety buffer on top of the collateral factor called liquidation threshold, which varies for each supported asset. When a user reaches 100% of their borrow limit, they won’t be able to borrow any more funds, but they will still have a small cushion (~5%) until liquidation to repay the loan or add collateral to their position. This is contrary to other lending and borrowing protocols, where a user’s position becomes unsafe as soon as they hit the maximum loan-to-value ratio.
Chainlink’s tamper-proof oracle solution will natively deliver reliable price information around Cardano’s native ADA token directly to Liqwid, making it critical infrastructure underpinning many key functions of the Liqwid lending and borrowing protocol. If the price oracle validator script uses a single source for price data updates, becomes compromised, stops reporting price, or provides inaccurate price data, the entire protocol could be at risk.
We are integrating Chainlink because it is the most time-tested decentralized oracle solution in the blockchain industry. Chainlink Price Feeds are backed by high-quality data, secure node operators, and a reliable reputation network for proving security and performance. Chainlink already helps secure leading DeFi protocols responsible for tens of billions of dollars in smart contract value, maintaining robust security and high availability even amidst unexpected events, such as exchange downtime, flash crashes, and data manipulation attacks via flash loans.
Built on Cardano’s Plutus smart contracts for deterministic, secure, and low-cost transactions, Liqwid is a borderless decentralized marketplace for lenders and borrowers. The Liqwid protocol unlocks access to a global liquidity pool for each supported asset. Liqwid’s market security is bolstered by continuous access to accurate price data inputs from the Chainlink decentralized oracle network.
By accessing Chainlink’s high-quality market data, Liqwid’s ADA/USD reference price will be secured by a decentralized network of independent, Sybil-resistant oracle nodes maintained by leading DevOps teams with a proven track record of reliability. Chainlink nodes source data from multiple industry-leading data aggregators like Amberdata and Kaiko; each data source represents a volume-weighted price aggregated from hundreds of exchanges. The data sourcing process is crucial as it mitigates outlier price data during loan origination, collateral asset pricing, and liquidation events. As an outcome of this integration, Liqwid will securely initiate loans and price collateral assets at their fair market value, helping ensure the system is fully collateralized to maintain protocol solvency.
Utilizing Chainlink for secure collateral asset price updates, loan origination, and liquidations in Liqwid is a meaningful step on the journey to improving our protocol’s resiliency for lending and borrowing on Cardano. Rather than spending valuable time and resources maintaining our own oracle solution, Chainlink will enable our team to focus development efforts on refining Liqwid and building features that drive capital efficiency.
We are excited to see Chainlink Price Feeds add support for assets on Cardano’s extended UTXO blockchain. Chainlink’s suite of decentralized services will be a catalyst in the Cardano DeFi ecosystem, advancing the development of hybrid smart contracts written in Plutus.
“Chainlink is synonymous with robust oracle infrastructure, specifically with respect to price data in DeFi protocols. Integrating Chainlink Price Feeds for tamper-proof price data to help secure collateral, loan origination, and liquidations in Liqwid is a demonstrable step towards Liqwid becoming one of Cardano’s leading DeFi protocols,” noted Dewayne Cameron, Co-Founder of Liqwid.
Chainlink is the industry standard for building, accessing, and selling oracle services needed to power hybrid smart contracts on any blockchain. Chainlink oracle networks provide smart contracts with a way to reliably connect to any external API and leverage secure off-chain computations for enabling feature-rich applications. Chainlink currently secures tens of billions of dollars across DeFi, insurance, gaming, and other major industries, and offers global enterprises and leading data providers a universal gateway to all blockchains.
Liqwid is an algorithmic and non-custodial interest rate protocol built on Cardano for lenders and borrowers. Users can securely earn interest on deposits and borrow assets with ease while earning yield on ADA from multiple revenue streams.