Ethereum-based lending protocol Litquity's newest version wants you to fork it

Litquity, the Ethereum-based lending and borrowing protocol, has launched the second version of its app, Litquity V2, marketing lead Samrat Lekhak told The Block in an interview. 

Unlike existing lending platforms, which typically set rates through protocol governance or supply-demand dynamics, Liquity V2 will enable borrowers to pick their own interest rates when borrowing against ETH and staked ETH from RocketPool or Lido. 

“This should make it like the most market-driven venue in all of DeFi for borrowing against essentially ETH, RocketPool ETH and Lido ETH,” Lekhak said, noting he expects rates will likely mirror MakerDAO and Aave at first. 

“But since our rates are completely market-driven,  further down the line, we expect that our rates will reflect the true market conditions across DeFi,” he added.

Liquity also offers a “non-USD” stablecoin called BOLD, which is backed entirely by ETH and ETH derivatives. According to the documentation, all revenue generated by Liquity V2 will go towards BOLD, with 75% going to stability pools for depositors and 25% to “protocol incentivized liquidity” for liquidity providers. 

“This setup minimizes the spread between borrowing and lending rates,” Lekhak said. “It’s a way to offer sustainable yields without intermediaries. It has a continuous yield source from the the interest that borrowers pay.”

Liquity has the honor of being one of the most forked DeFi projects ever, with approximately 45 different versions of the protocol putting it just behind projects like Aave and Uniswap. Lekhak said the team is leaning into this time and using forks to help bootstrap its protocol. 

The protocol is being released under a Business Source License, a.k.a. BUSL, which allows users to view and modify source code but restricts commercial applications. Lekhak said the team has signed approximately 15 deals to have others launch its code across different EVM chains like Hyperliquid, Arbitrum and Scroll. All of these forks, expected to launch within six months, will allocate a percentage of their tokens or points to the original Liquity. 

“Essentially what these forks did with Liquity V1 was that they just added a different collateral type and different token,” Lekhak said. “They launched and we literally got nothing back.”

Lekhak noted that when they announced this "forkonomics” plan a few months ago, there was some initial backlash — similar to when Uniswap decided to release its upcoming v4 under a restrictive license — but “the positives far outweighed the negatives.