Liqwid Finance 2025 Revenue Analysis, LQ Buybacks and Proposed Governance Change
The Liqwid Labs core team has completed its initial analysis of protocol revenue and the value generated for LQ stakers over the first 5.5 months of 2025 (01.01-16.06). The Liqwid DAO has seen strong revenue growth during this period, with accumulated interest trending upward significantly in recent months.
Accumulated interest represents protocol revenue, which is realized upon the repayment of outstanding loans. This upward trend reflects a healthy and growing lending activity within the protocol.
One of Liqwid’s key features is the ability for lenders in each market to withdraw accrued interest (yield) at any time. This functionality enables suppliers to realize their earned interest income as frequently as they choose, without waiting for the full loan to be repaid. When lenders withdraw their accrued interest, they are effectively bringing forward the realization of yield on their deposits.
Currently, LQ stakers and the DAO treasury do not yet benefit from this functionality. However, the Liqwid Core Team is actively working on a similar mechanism to enable earlier access to protocol revenues for both parties (same as the suppliers).
Accrued interest summary from the Liqwid platform activity:
Over the past 5.5 months, cumulative accrued interest within the Liqwid Protocol has increased significantly—from $500K to $2.1M. According to the current income distribution model, 80% of all interest accrues to lenders, while the remaining 20% is evenly split between LQ stakers (10%) and the Liqwid DAO treasury (10%).
Based on the $2.1M in accrued interest, the protocol currently holds:
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$1.7M in interest available for withdrawal by lenders
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$400K in interest allocated to LQ stakers and the DAO treasury
Graph: Cumulated accrued interests vs Cumulated Revenues from interests
The Liqwid protocol currently holds $2.1M in cumulative accrued interest, generated from active loans. In contrast, only $55.5K has been realized through loan repayments or liquidations during the same period. This imbalance between realized and unrealized revenue indicates that while borrowing activity remains strong, borrowers are not actively closing their positions.
We interpret this behavior as likely tied to market expectations of a bull run. Many users appear to be leveraging their assets through Liqwid and may be waiting to sell and repay their loans when ADA reaches a higher price, allowing them to maximize returns.
Note: Loan origination fees are not yet included in the current “Revenues” data. The Liqwid Core Team is actively building dashboards to incorporate this data in future reporting. The current buyback analysis (see below) reflects revenues generated from interest income and loan origination fees.
Comparison of LQ Buybacks (Programmatic Rewards) to LQ emissions
Period: January 1, 2025 – May 30, 2025 (149 days)
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LQ Buybacks: A total of 52,281.2 LQ has been bought back using cumulative revenues allocated to LQ stakers. These buybacks were executed as part of the Programmatic Rewards system.
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Buyback Value: The total buyback amount corresponds to 186,000 ADA spent during this 5-month period.
Programmatic Rewards
LQ Buyback vs. Emissions Summary:
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Buyback Forecast (12-Month Projection): If current trends continue, the protocol is on track to buy back approximately 125,300 LQ annually.
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Staking Rewards Emissions: * Over the same period, 87,000 LQ were emitted as staking rewards. When annualized, this results in a projected emission of 220,000 LQ for the full year.
Our forecast, based on the last 5 months, predicts a net inflation of 141.5k LQ (*).
This figure reflects the total LQ generated through staking rewards (+220k LQ) and market incentives (+46.8k LQ), offset by the buybacks executed under the programmatic rewards program (-125.3k LQ).
By reducing the staking rewards rate from 5% to 2.5%, we would see a negative net inflation of approximately +68.5k LQ for this year.
Visual view of the current LQ inflation coming from the Staking rewards only
The chart below forecasts the Staking reward LQ inflation over time (first 5 months of 2025 actual and 7 months forecasted)
Currently, LQ issuance from staking rewards stands at approximately 3,800 tokens per week (or 16.2k per month). This figure is projected to increase gradually to 4,200 LQ per week (roughly 18k per month) by the end of the year.
The gradual rise in weekly emissions is primarily driven by the compounding effect of restaked LQ staking rewards, which increases the base on which new rewards are calculated.
Conclusion: Current Imbalance between LQ Emissions vs. Buybacks
Currently, LQ staking rewards significantly outpace LQ buybacks, resulting in higher-than-necessary inflation and sustained monthly selling pressure on the token.
Unlike most DeFi protocols, which typically employ either buybacks or “some types of revenues distribution to the governance token stakers” Liqwid uniquely implements both strategies. Each month:
Protocol revenues are used to perform buybacks, which are then redistributed to LQ stakers as programmatic rewards.
The Liqwid DAO treasury also contributes to buybacks using DAO-held assets.
This dual mechanism provides LQ stakers with two streams of value:
- A buyback funded by the DAO treasury
- A programmatic reward (also a buyback) funded by protocol revenues
In addition to this, the DAO continues to emit LQ staking rewards at a fixed 5% APY.
However, the combination of emissions from staking rewards and redistributed LQ buybacks is currently undermining the effectiveness of the buyback program by contributing to consistent net token inflation and increased market supply. This imbalance calls for a recalibration to preserve the long-term sustainability of the protocol’s economic design.
The Liqwid Core Team recommends the Liqwid DAO to bring LQ staking yield down to a level to where this gradual acceleration of LQ emissions in the form of LQ staking rewards is not as large a percentage of total monthly buybacks value as it is today.