DeFi lending platform Liquity Protocol has secured $6 million in Series A funding to expand its on-chain borrowing services, underscoring the continued growth of cryptocurrency loans.
The funding round was led by Pantera Capital, a crypto-focused venture capital firm, with additional contributions from Nima Capital, Alameda Research, Greenfield.one and IOSG, the company announced Monday. Angel investors including Meltem Demirors, David Hoffman and Calvin Liu also contributed to the raise.
Robert Lauko, Liquity Protocol’s CEO, said the new funding round “will allow us to continue pursuing Liquity’s mission of improving access to on-chain borrowing, removing interest rates, and minimizing governance in DeFi.”
Incorporated in Zug, Switzerland, Liquity provides interest-free borrowing on collateralized loans backed by Ethereum (ETH). Loans are paid in LUSD, a dollar-pegged stablecoin, and require a minimum collateral ratio of 110%.
The company says its protocol will go live on the Ethereum mainnet on April 5.
Although some of the hype has died down, DeFi remains one of the hottest corners of the cryptocurrency market. As of Monday, more than $78 billion was locked into DeFi protocols, according to industry data. As Cointelegraph recently reported, Binance Smart Chain-native DApps are leading the sector’s growth.
DeFi lending and borrowing services are expected to grow as the cryptocurrency market expands to new highs, prompting investors to defer capital gains taxes or leverage capital for unforeseen expenses. Microstrategy CEO Michael Saylor has advocated for holding crypto assets – i.e., Bitcon – for 100 years or more and borrowing against it to finance everyday expenses.
Lauko says the biggest issues in the DeFi lending market are that "varying interest rates and fees make DeFi lending pretty unpredictable," which means "people are paying a high premium on fixed-interest products." Borrowers are also willing to pay much higher interest rates to be able to borrow at a lower collateralized loan ratio.
"Liquity aims to solve this problem by replacing variable interest rates with a one time borrowing fee while simultaneously improving capital efficiency through a 110% minimum collateralization ratio," he said.