Liquid Finance Protocol
Liquid Finance operates as a unified decentralized lending infrastructure, seamlessly integrating loan origination, on-chain collateral management, fee accrual, and governance under one architectural framework. While each liquidity pool functions as a distinct fund and legal entity tailored to specific investment strategies, geographies, or asset classes, all pools leverage the same underlying protocol to ensure transparency, efficiency, and scalability. This structure allows the protocol to act as a single point of innovation and reliability while enabling flexibility for individual pools to serve diverse borrower and investor needs.
Smart Contract Infrastructure
The protocol’s core functionality relies on self-executing smart contracts that govern every stage of the lending cycle. When a borrower submits a loan request, an AI underwriting module analyzes the proposed deal by evaluating property details, borrower creditworthiness, and potential BTC price impacts. If the underwriting engine returns a favorable risk assessment, the smart contracts automatically set the principal amount, loan-to-value (LTV) requirements, and interest rate. The loan terms are recorded on-chain to remove ambiguity and minimize human error. Because each transaction is anchored in transparent code, participants can verify loan details and collateral balances at any time, further reinforcing trust in the system.
Liquidity Pool Management
Investors deposit stablecoins or other crypto assets into one of Liquid’s lending pools. In return, they receive a token specific to that pool, representing their pro rata share of its liquidity. Any capital that is not actively funding a loan remains in the pool, earning a baseline yield from low-risk strategies until it is deployed for future loan requests. When the protocol approves a loan, it automatically acquires additional BTC equal to 20–40% of the principal and secures it in an on-chain vault. The borrower then receives the principal for the CRE project, with interest obligations defined by the protocol’s underwriting calculations. The combination of real estate collateral and protocol-managed BTC minimizes default risk by diversifying the underlying security.
Dynamic Rate Adjustments
In Liquid’s model, borrowers benefit from the potential for reduced interest costs over the life of the loan. As BTC appreciates, the loan’s collateralization ratio improves, indicating a lower default risk. Borrowers can initiate a refinancing at a nominal fee of 0.1%, allowing them to lock in a lower interest rate that reflects the strengthened collateral position. Refinancing is borrower-driven to provide maximum control, but the protocol may add automated triggers in the future if borrowers wish to set refinancing thresholds that execute without manual oversight. By aligning debt costs with real-time collateral values, Liquid eliminates traditional reliance on central bank rate cycles and creates an adaptive, market-driven approach to interest management.
Itemized Fee Structure
Liquid employs an event-based fee system that allocates all charges to the protocol’s treasury. The treasury then funds infrastructure development, governance initiatives, and rewards for holders of the protocol’s governance token.
Origination Fee (0.25 percent). This fee applies at loan closing to compensate for the costs of AI underwriting, compliance checks, and the deployment of on-chain contracts.
Net Interest Margin (0.5 percent). Throughout the life of the loan, the protocol retains a half percent margin on borrower interest payments. This margin supports protocol infrastructure, risk monitoring, and essential operational expenses.
Refinancing Fee (0.1 percent). Borrowers who choose to refinance pay this fee to cover the smart contract updates and collateral adjustments required for recalculating their interest rate.
Trading Fee (0.1 percent). When tokenized loan positions are traded in secondary markets, a tenth of a percent fee is applied to facilitate liquidity and maintain market robustness.
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