First published 6 January 2022; rewritten August 2026 and expanded in October 2026. The old page mixed protocol mechanics with a soft sell. Here is the shape of the original Liquity design, and the one fact that now confuses readers: a later Liquity system issues a different token.
What LUSD is
LUSD is a token on Ethereum that aims to stay near one US dollar. You do not mint it by depositing dollars at a company. In the original Liquity system you deposit ETH as collateral and borrow LUSD against it. If ETH’s price falls far enough relative to your debt, the position can be liquidated. That is the cost of the design, not a footnote.
The minimum collateral ratio was 110 percent: a thinner cushion than older ether-backed systems. A small drop in ETH can reach liquidation. People called that capital efficiency. It is also a smaller margin for a bad afternoon.
LUSD is not BOLD
Liquity later shipped a second system. Its stablecoin is BOLD, not LUSD. BOLD can be minted against ether and some staked-ether tokens, with user-set interest and its own redemption rules. LUSD remains the original token, backed by ether in the original contracts. The project has said the first system stays. A wallet that shows both has not made them the same object. This page is LUSD. If a tutorial says BOLD, you are in a different product, with different collateral and a different way of being redeemed against.
How it differs from the household names
USDT and USDC are typically IOUs from issuers who say they hold reserves. You trust a firm, a bank, and a freeze button. LUSD’s pitch was the opposite: ETH in a contract, redemptions that pull the token toward a dollar, and a stability pool that absorbs liquidations. You trust code, oracles, collateral quality, and your own ability not to get liquidated. Those are different risks, not “no risk”. Stablecoins: useful, not magic is the category. This page is one mechanism inside it.
Words that show up in the docs
Collateral ratio: how much ETH value sits behind the LUSD you minted. At the 110 percent minimum, the cushion is thin when ETH drops.
Stability pool: LUSD deposited to take on liquidated collateral, with rewards attached. Useful as a mechanism. Not a savings account. You can end up holding ETH from other people’s liquidations instead of the LUSD you deposited.
Redemption: a way for someone to swap LUSD for ETH at a dollar of ETH value, which is how the protocol leans on the peg. Redemptions can pay down other borrowers’ debt and hand them ETH. That can happen to a position you thought was only yours. Read that twice before you treat “decentralised dollar” as a slogan.
LQTY: a separate token used for incentives. It is not LUSD. A wallet that shows both can still confuse a send.
What can still go wrong
The peg can slip in a thin market even when the mechanism exists. Smart contracts can fail. Oracles can be wrong. A front end can be a phishing site that asks you to sign an approval. DeFi is software with rules you cannot call support about. There is no hardship department if ETH gaps through your collateral ratio. A recovery mode in the original design changes the rules when the whole system is thinly collateralised. You do not need the formula. You need to know the rules can tighten when prices fall together.
What this page will not do
We will not tell you LUSD is safer than a bank, safer than USDC, or a place to park rent money. We will not tell you to migrate to BOLD or to stay in LUSD. If you cannot explain which token you hold and which contracts minted it, do not mint it. For tokens and gas in slower language, read Ethereum without the jargon. Not financial advice, and not an instruction to borrow, deposit, or redeem.
