First published 6 January 2022; rewritten August 2026. The old page mixed protocol mechanics with a soft sell. Here is the shape of the original Liquity design, without a yield pitch.
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 Liquity model, 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.
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”.
Words that show up in the docs
Collateral ratio: how much ETH value sits behind the LUSD you minted. Liquity’s minimum was famously low compared with older ETH-backed systems — which means a thinner cushion when ETH drops.
Stability pool: LUSD deposited to take on liquidated collateral, with rewards attached. Useful as a mechanism; not a savings account.
Redemption: a way to swap LUSD for ETH at a dollar of ETH value, which is how the protocol leans on the peg. It can affect other borrowers. Read that sentence twice before you treat “decentralised dollar” as a slogan.
LQTY: a separate token used for incentives and governance-shaped rewards. It is not LUSD. A wallet that shows both can still confuse a send.
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. Stablecoins can lose their peg. Smart contracts can fail. Front-ends can be phishing. If you cannot explain which token you hold and which contract minted it, do not mint it. For tokens and gas in slower language, read the Ethereum guide. Not financial advice.
