LUSD Collateral Calculator
Calculate how much ETH you need to deposit as collateral to borrow LUSD. This tool shows the 110% collateral requirement and the 0.5% one-time fee.
What is LUSD crypto?
LUSD is a decentralized, interest-free stablecoin pegged to the US dollar, built on the Ethereum blockchain and issued by the Liquity Protocol. Unlike USDC or USDT, which hold dollars in bank accounts, LUSD is backed entirely by Ethereum (ETH) locked in smart contracts. It was launched in April 2021 and has since become one of the most stable algorithmic stablecoins in DeFi, with a market cap of $37.7 million as of November 2025.
How does LUSD stay worth $1?
LUSD doesn’t rely on banks or auditors to hold reserves. Instead, it uses three smart contract mechanisms to keep its value locked at $1:
- The Stability Pool - Users can deposit LUSD here to earn rewards in LQTY (Liquity’s native token) and get paid in ETH when borrowers get liquidated.
- Redemption - Anyone can exchange 1 LUSD for $1 worth of ETH directly from the protocol, no middleman needed. This creates instant arbitrage: if LUSD drops to $0.98, people rush to buy it and redeem for $1 of ETH, pushing the price back up.
- Liquidations - If someone’s ETH collateral falls below 110% of their LUSD debt, their position is automatically sold off. The debt is wiped out with LUSD from the Stability Pool, and the ETH goes to pool depositors.
This system works even during crashes. During the May 2021 market plunge, LUSD stayed within 0.5% of $1 while DAI briefly spiked to $1.05. In 2023, during the FTX collapse, users reported LUSD held its peg within 0.3% as ETH dropped 40% in under two days.
Why borrow LUSD instead of other stablecoins?
The biggest reason? No interest. MakerDAO’s DAI charges variable fees. Aave’s stablecoins accrue interest. LUSD? You pay a one-time 0.5% fee when you open a loan - and that’s it. No monthly payments. No compounding costs.
It’s also the most capital-efficient stablecoin in DeFi. To borrow $100 in LUSD, you need just $110 in ETH. Compare that to DAI, which requires $150 in ETH for every $100 borrowed. That 40% lower collateral requirement means you can borrow more with less ETH locked up.
And because it’s non-custodial, no company controls it. No CEO can freeze your funds. No regulator can shut it down. It runs on code - and that code has been live since 2021 with zero exploits.
Who uses LUSD - and why?
LUSD isn’t for casual crypto users. It’s for people who understand DeFi and want to use ETH as leverage.
- DeFi traders borrow LUSD to buy more ETH, betting the price will rise. They can then use that ETH as collateral again to borrow more LUSD - creating a leveraged position without selling their holdings.
- Stability Pool providers deposit LUSD to earn LQTY rewards. In 2023, one user on Discord earned 14.2% APY during a spike in liquidations.
- Institutions use LUSD for hedging. Since it’s non-custodial and pegged reliably, it’s safer than centralized stablecoins during exchange collapses.
Nansen.ai found that 68% of LUSD borrowers hold their positions longer than 90 days - meaning most aren’t speculating. They’re using it as a tool for long-term strategy.
What are the downsides?
LUSD isn’t perfect. The biggest problem? Ethereum gas fees.
Opening a $500 LUSD loan can cost $40-$60 in gas during network congestion. That makes it nearly impossible for small users to participate. One Reddit user called it “a barrier for anyone who can’t afford to borrow big.”
Another issue: no easy cash-out. You can’t directly turn LUSD into USD like you can with USDC. You have to swap it on a DEX like Uniswap, which adds steps, slippage, and complexity.
There’s also risk. If ETH crashes 50% in an hour - something that’s happened before - the 110% collateral ratio could be breached faster than liquidations can keep up. DeFi researcher Hasu warned this creates a “narrow margin for error” during black swan events.
How to get started with LUSD
Here’s how to borrow LUSD:
- Get ETH in a wallet like MetaMask.
- Go to app.liquity.org (official site only).
- Connect your wallet and deposit ETH as collateral (minimum $500 worth).
- Mint LUSD up to 90% of your collateral value.
- Pay the 0.5% borrowing fee in ETH.
Keep your collateral ratio above 110%. Use ETH price alerts or tools like Liqee.io to get notified if your position is at risk.
If you want to earn rewards, deposit LUSD into the Stability Pool. You’ll earn LQTY tokens and ETH from liquidations - but you’re also at risk if the entire system collapses (a rare but possible scenario).
What’s next for LUSD?
Liquity is working hard to fix its biggest flaw: gas fees.
In late 2025, they’re launching cross-chain LUSD via LayerZero, so you can use it on Arbitrum, Polygon, and zkSync. Aztec Network already lets users bundle multiple transactions off-chain to cut Ethereum fees by 80%.
By Q2 2026, they plan to let users use staked ETH (like from Lido) as collateral - meaning you can earn staking rewards and borrow LUSD at the same time.
They’re also talking to the Digital Dollar Project about potential integration with future central bank digital currencies.
LUSD vs DAI vs USDC
| Feature | LUSD | DAI | USDC |
|---|---|---|---|
| Backing | Ethereum (ETH) | Ethereum (ETH) + other assets | US dollars in bank accounts |
| Collateral Ratio | 110% | 150%+ | 100% (centralized) |
| Interest | None (0.5% one-time fee) | Variable stability fee | None |
| Decentralized? | Yes | Yes | No (Circle controls it) |
| Redemption? | Yes - for ETH | Yes - for ETH | No - only via exchanges |
| Gas cost to use | High (Ethereum) | High (Ethereum) | Low on Layer 2s |
| Best for | DeFi power users wanting interest-free leverage | Users who want decentralized but accept fees | Everyday users needing fast fiat on/off ramps |
Is LUSD safe?
It’s one of the safest algorithmic stablecoins ever built. It survived the TerraUSD collapse, the 2022 bear market, and multiple ETH price crashes. Its 245% overall collateral ratio means every $1 of LUSD is backed by $2.45 in ETH - far more than needed.
But safety isn’t absolute. If ETH drops 70% in minutes, the system could struggle. That’s why experts recommend only using LUSD if you understand DeFi and can monitor your position.
For most people, USDC is easier. For those who want to maximize ETH usage without paying interest? LUSD is unmatched.
Is LUSD backed by real money?
No. LUSD is not backed by US dollars. It’s backed entirely by Ethereum (ETH) locked in smart contracts. For every LUSD in circulation, there’s more than $2.45 worth of ETH held as collateral. This makes it algorithmic and decentralized, unlike USDC or USDT.
Can I lose money using LUSD?
Yes - if you borrow LUSD and ETH crashes too fast, your position can be liquidated. You’ll lose part of your ETH collateral. If you deposit LUSD in the Stability Pool, you could lose your LUSD if ETH collapses and the system can’t cover all debts - though this has never happened. Always understand the risks before using DeFi.
How do I cash out LUSD to USD?
You can’t convert LUSD directly to USD. You must swap it for ETH first, then sell ETH on a centralized exchange like Coinbase or Kraken for USD. This adds steps and fees. It’s not as simple as cashing out USDC, which can be withdrawn directly to a bank account.
Do I pay interest on LUSD loans?
No interest. You pay a one-time 0.5% fee when you open your loan. That’s it. No monthly payments, no compounding fees. This is one of LUSD’s biggest advantages over DAI and other DeFi stablecoins.
Can I use LUSD on other blockchains?
Right now, LUSD only exists on Ethereum. But a cross-chain version via LayerZero is launching in Q4 2025. After that, you’ll be able to use LUSD on networks like Arbitrum, Polygon, and zkSync - which will make it cheaper and faster to use.
What’s the minimum amount to borrow LUSD?
There’s no official minimum, but you need at least $500 worth of ETH to open a position because of gas fees. Borrowing $100 of LUSD might cost $40 in gas - making small loans impractical. Most users borrow $1,000 or more to make sense of the costs.
Final thoughts
LUSD isn’t for everyone. If you want a simple, fast way to hold a dollar-pegged token, use USDC. But if you’re deep in DeFi, want to leverage ETH without paying interest, and can handle gas fees - LUSD is the most efficient tool available. It’s not perfect, but it’s proven. And with layer-2 upgrades coming, it’s only getting better.