Liquidium is a Bitcoin lending platform that allows you to borrow and lend bitcoin using Ordinals, Runes, and BRC-20 tokens as collateral. The lending app leverages Discreet Log Contracts (DLCs) and Partially Signed Bitcoin Transactions (PSBTs) for a tamper-proof loan process in a secure onchain system.
Read on to learn more about Liquidium in this review.
What Is Liquidium?
Liquidium is a peer-to-peer DeFi lending platform built on the Bitcoin network. It allows users to borrow and lend Bitcoin using digital assets like Ordinals, Runes, or BRC-20 tokens as collateral via customizable loan agreements.
Unlike traditional financial platforms, Liquidium operates in a non-custodial environment where all transactions are secured by smart contracts.
In an interview, Obermaier, Liquidium’s co-founder, described DLCs: “The beauty of a DLC is that even if Liquidium decided to rug, we couldn’t. Because the DLC only has two possible outcomes – the borrower or the lender. There’s no path that leads to us taking a user’s collateral.”
How Does Liquidium Work?
Liquidium allows users to access bitcoin liquidity without selling their assets in a transparent. Everything is handled using Bitcoin’s Layer 1 technology that no one can tamper with.
Liquidium operates on short-term loan durations, and the steps for borrowing include the following:
- Collateral selection, wherein borrowers select a digital asset (Ordinal, Runes, or BRC-20 token) that they own and have in their wallet to use as collateral.
- Next, they set their desired loan terms like the amount of bitcoin, loan-to-value (LTV) ratio, annual percentage yield (APY), and loan period. Liquidium then automatically displays competitive terms to guide users.
- The collateral given by the borrowers is locked in a non-custodial escrow powered by a Discreet Log Contract (DLC) to ensure the secure handling of assets on-chain.
- Lenders then review the loan request to either accept or counter those terms. Once both parties agree, the loan is initiated after they countersign using Partially Signed Bitcoin Transactions (PSBTs). This is the step where borrowers receive bitcoin while the collateral remains securely held within the DLC.
- Borrowers repay the principal loan plus the agreed-upon interest within the loan period, and the DLC automatically releases the collateral back to them. However, if the borrower fails to repay, the lender automatically receives the collateral.
It is pretty simple. Borrowers get liquidity without selling their digital assets, and lenders earn interesting while feeling safe knowing the escrow cannot be tampered with and their loan is collateralized.
What DeFi Services Does Liquidium Offer?
The peer-to-peer Bitcoin lending platform Liquidium offers the following DeFi services:
Bitcoin Borrowing
Users can borrow funds using various Bitcoin-based assets such as Ordinals, BRC-20 tokens, and Runes as collateral. They can specify their terms, like the loan amount, duration, and interest rates, for a tailored approach to their needs.
Bitcoin Lending
On the flip side, lenders can provide bitcoin to borrowers and earn interest on their holdings. They review active loan requests in a gallery-style marketplace while filtering options based on APY, collateral type, or loan duration.
Custom OTC Loans
Over-the-counter (OTC) loans facilitate direct negotiations between the parties, which involve direct offers on specific digital assets by lenders. At the same time, borrowers respond with counter offers to negotiate the terms to suit both.
Borrowers and lenders can interact using the built-in discussion channels on Discord and Telegram. Additionally, the “gallery-style” loan marketplace makes it easy to compare offers effortlessly for a better user experience and accessibility.
Runes Swaps
Liquidium has also launched a Runes swapping feature that allows you to buy Runes tokens with BTC simply by connecting your Bitcoin Web3 wallet.
Which Assets Does Liquidium Support?
Liquidium supports three Bitcoin-based assets for its lending and borrowing services:
- Ordinals: Unique digital assets inscribed on individual satoshis, typically in the form of an NFT.
- BRC-20 tokens: Bitcoin-based fungible tokens.
- Runes: Advanced Bitcoin-based fungible tokens.
User Experience
Liquidium offers an intuitive platform with distinct borrower and lender interfaces where borrowers can easily request loans, manage collateral, and track their portfolios. Lenders can browse loan requests, negotiate terms, and manage their ending activity.
The platform also offers features like filters, countersignatures, and direct offers that create a streamlined and interactive experience.
Security
Liquidium uses a 2-of-3 multisig wallet system to safeguard the collateral, which means it requires at least two parties to sign the release of collateral. The three involved parties are the borrower, the lender, and the Liquidium Oracle (via DLC). This setup ensures that collateral remains secure during the loan term, and no single party can unilaterally move assets.
Moreover, a built-in timelock protects the collateral so lenders do not prematurely access it before the loan duration expires. Along with that, DLCs act as a non-custodial escrow for loan agreements. Predefined outcomes, such as repayments or defaults, determine whether the collateral is returned to the borrower or transferred to the lender.
Liquidium ensures further security with independent audits by Scalebit to confirm these core technologies exist and are essential to the functionality of the Ordinals, Runes, and BRC-20 lending and borrowing on the platform.
Customer Service
Liquidium provides support via Discord and Telegram for loan negotiations, troubleshooting, and general assistance. Moreover, comprehensive guides and FAQs are available for users to understand the platform’s mechanics.
Pros and Cons of Lending Bitcoin on Liquidium
Let’s discuss the Bitcoin lending platform’s pros and cons.
Pros
- Lenders can earn a high yield, potentially up to 380% APY on their Bitcoin, for selected collaterals.
- Non-custodial, which means that users retain control over their assets throughout the lending process.
- Secure and trustless onchain transactions made possible by Partially Signed Bitcoin Transactions (PSBTs) and Discreet Log Contracts (DLCs).
- Lenders can lend against unique Bitcoin-based assets like Ordinals, Runes, and BRC-20 tokens, expanding the collateral options range.
Cons
- The primary risk associated with Bitcoin loans, including those on Liquidium, is the volatility of Bitcoin and Bitcoin L1 assets that could affect the loan performance.
The Takeaway
Liquidium opens doors to Bitcoin-based lending by combining robust security, transparency, and decentralization. Its integration of discrete log contracts, multisig escrows, and partially signed Bitcoin transactions assures users of trustless, tamper-proof loan processes on the Bitcoin blockchain.
Borrowers gain access to liquidity without selling their assets like Ordinals, Runes, or BRC-20 tokens, and in the same way, lenders enjoy customizable and secure opportunities to earn high yields.
While Liquidium is one of the newer entrants in the BItcoin lending market, it has arguably established itself as one of the most exciting lending platforms for potentially earning a high yield on bitcoin.
Disclaimer: This content is meant to inform and should not be considered financial advice. The views expressed in this article may include the author’s personal opinions and do not represent Times Tabloid’s opinion. Readers are urged to do in-depth research before making any investment decisions. Any action taken by the reader is strictly at their own risk. Times Tabloid is not responsible for any financial losses.