June 3, 2021
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Liquity’s second month live was quite the rollercoaster due to the “grey swan” event on 5/19, which led to ETH’s price dropping from ~$3,400 to ~$1,800 in a brief period. If you’re an active community member, this will be no surprise, but if you’re only loosely keeping up with Liquity — you’re in for some good news.
While the original cause of the price drop is unknown, what is known is that 5/19 was a massive deleveraging event that Liquity handled flawlessly:
As you can see in the chart above, the system quickly liquidated a number of Troves both under normal liquidation conditions and Recovery Mode conditions. All debt was made whole and all Stability Pool depositors were paid their ETH dues from the liquidated positions. While things went well, I won’t expand too much on the events of 5/19 since I’ve already done so in How Liquity Handled its First Big Stress Test.
Despite the events mentioned above, borrowers are starting to get more comfortable with market conditions and are continuing to borrow. Since 5/19, the LUSD supply has climbed from a monthly low of ~480M to ~733M. Meanwhile, the number of Troves has also grown from a monthly low of ~499 Troves to ~715 Troves. Heading into June, more LUSD has been minted than burned in the last week:
Last but not least, total protocol revenue passed $10M in May and has since climbed to >$12.3M:
Remember: All system revenue is generated from borrowing fees (paid in LUSD) and redemption fees (paid in ETH). That revenue is then passed on directly to LQTY stakers.