What is an LSD token?
Liquid Staking Derivatives - or LSD tokens - are a unique kind of token that allows stakers* to earn yield without losing the liquidity of their staked assets. These liquid tokens can be used in various ways; they can be sold, traded or used in Defi applications just like regular ETH.
*Ethereum is a proof-of-stake blockchain where stakers lock their Ether to secure the network and earn rewards.
What is ZeroLiquid?
ZeroLiquid adds additional utility to LSD tokens by enabling users to receive self repaying, 0% interest loans against their LSD tokens without any risk of liquidation.
How does ZeroLiquid work?
When a user deposits LSD tokens into ZeroLiquid, they will be issued a synthetic token (zETH) that can be traded on the market to provide instant liquidity. This allows the user to obtain money now without having to sell their Ether.
Users do not need to worry about making repayments, as loans are repaid automatically using the staking rewards earned by the deposited LSD tokens. If they wish to, users can early unstake by paying back the remaining loan.
Can I be liquidated?
No! As a user’s collateral and debt are both denominated in Ether, if the value of one rises or falls, so does the value of the other. Therefore, a user will never be liquidated when using ZeroLiquid.
A user deposits 100 Ether into ZeroLiquid and receives a loan of 10 Ether. While the loan is being repaid, the price of Ether drops 75%. The value of their collateral has dropped 75%, but so has the value of their debt, so there is no liquidation and the time taken to repay the loan is unchanged.
What are the use cases?
A key use case of ZeroLiquid is the ability to obtain money on demand without being forced to sell your assets. For example, a user needs $2,000 to pay their rent this month, but they don’t want to sell their Ether. Instead, they can lock up Ether LSD tokens in ZeroLiquid to immediately receive the money, safe in the knowledge that they cannot be liquidated and their full deposit will unlock at maturity.
We will also be building additional functionality on top of ZeroLiquid, stay tuned.
What is the ZERO token?
The ZERO token is the governance token of the ZeroLiquid protocol. Holders of the token can stake it to earn a share of protocol revenue.
The initial maximum supply of ZERO was 100 million. However, following the community's approval of a burn program, 69.420% of the total supply will be burned. Burns will occur quarterly as tokens unlock from the vesting contract, bringing the total supply down to 30.6m.