How to Use Liquity V2 for BOLD Borrowing 2026

Liquity V2 lets you lock up Ethereum collateral and mint a decentralized stablecoin called BOLD, while you pick the interest rate you want to pay. This tutorial walks through how borrowing works, how to set and adjust your rate, how redemptions affect your position, and how to earn yield with BOLD. The goal is a clear, practical guide so you understand each decision before you open a loan.

What Liquity V2 and BOLD Are

Liquity V2 is a decentralized borrowing protocol on Ethereum. You deposit collateral, choose your loan size, and mint BOLD, a stablecoin designed to stay close to 1 US dollar. There are no intermediaries setting your terms. You control your loan-to-value and you set your own interest rate.

BOLD is fully backed by on-chain collateral and is native to Ethereum. Because the protocol is non-custodial, you keep control of your position through your own wallet. The two features that make Liquity V2 distinct are user-set interest rates and a built-in redemption mechanism that helps keep BOLD near its peg.

Accepted Collateral

Liquity V2 accepts three types of collateral, each in its own isolated borrow market, often called a branch:

• ETH, native Ether.
• wstETH, the wrapped staked ETH from Lido.
• rETH, the liquid staking token from Rocket Pool.

Each collateral type has its own maximum loan-to-value and its own Stability Pool. ETH positions can reach a higher loan-to-value, while wstETH and rETH are capped slightly lower. A minimum debt of 2,000 BOLD is required to open a loan, so plan your position size accordingly.

How to Borrow BOLD: Step by Step

Borrowing on Liquity V2 follows a short, repeatable flow. Always double check the official site before connecting your wallet.

1. Connect your wallet

Open the official Liquity app and connect a self-custody wallet such as one that supports Ethereum mainnet. Make sure you hold enough ETH to cover network gas.

2. Choose your collateral

Select ETH, wstETH, or rETH. Your choice sets which borrow market and Stability Pool your loan belongs to, and it determines your maximum loan-to-value.

3. Set your loan size

Decide how much collateral to deposit and how much BOLD to mint. A lower loan-to-value leaves more buffer against price moves and lowers your liquidation risk. Remember the 2,000 BOLD minimum.

4. Set your interest rate

Pick the annual rate you are willing to pay. This is the step that is unique to Liquity V2, and it is covered in detail below.

5. Review and confirm

Check the upfront fee, your projected liquidation price, and your starting debt. Approve the transaction in your wallet. Once confirmed, BOLD lands in your wallet and your collateral is locked.

How User-Set Interest Rates Work

In most lending protocols a pool algorithm sets your rate. Liquity V2 hands that control to you. When you open a loan you choose the annual interest rate you will pay on your debt, and you can adjust it at any time as conditions change.

Here is a simple example. If you borrow 10,000 BOLD and set a 5 percent rate, you would pay roughly 500 BOLD in interest after one year. Interest accrues continuously, so the protocol works for both long-term and short-term loans. A lower rate reduces your cost, but as the next sections explain, it also changes your exposure to redemptions.

Because you control the rate, you can react to the market rather than wait for a pool algorithm. If borrowing demand rises and you want extra safety from redemptions, you can lift your rate. If you are confident the peg is stable and you want to minimize cost, you can lower it. The right level depends on your time horizon and how often you intend to log in and review your loan.

If you would rather not monitor rates yourself, you can use rate delegation. Specialized rate delegates can manage your interest rate on your behalf for a small fee, adjusting it as market conditions shift.

The Upfront Fee and Rate Adjustments

When you first open a loan, Liquity V2 charges an upfront interest fee equal to about 7 days of average interest on your collateral branch. This fee exists to reduce redemption gaming, where users might rapidly change rates to dodge being redeemed against.

The same 7-day fee applies again if you adjust your rate more often than once every 7 days. Practical takeaways:

• Plan your rate so you do not need to change it constantly.
• Spacing adjustments at least 7 days apart avoids repeat upfront fees.
• Factor the upfront fee into the total cost of short-duration loans.

Redemption Risk

Redemptions are how Liquity V2 defends the BOLD peg. If BOLD trades below 1 dollar, anyone can redeem BOLD for an equivalent dollar value of collateral. The collateral comes from the borrowers paying the lowest interest rates first, and their debt is reduced by the same amount.

This means your chosen rate affects both your cost and your redemption risk at the same time:

• Lower rate: cheaper to hold, but a higher chance you are redeemed against first.
• Higher rate: more expensive, but you sit further back in the redemption queue.

A redemption is not a liquidation and does not cause a loss of dollar value, since you receive debt reduction for the collateral taken. Still, it can shrink your position and your collateral exposure unexpectedly. Set your rate to match how actively you plan to manage the loan. If you check it often, a lower rate can work. If you prefer to set and forget, a higher rate offers more protection.

Earning With BOLD: The Stability Pool

BOLD is not only for borrowing. You can deposit it into a Stability Pool, sometimes presented as Earn, to receive yield. Each collateral branch has its own Stability Pool that absorbs liquidated debt.

When a risky position is liquidated, the pool burns BOLD to cover the debt and depositors receive the liquidated collateral in return, plus a share of interest revenue. To earn, you:

• Hold BOLD in your wallet.
• Deposit it into the Stability Pool of your chosen branch.
• Accrue yield over time and withdraw when you choose.

Before committing, you can benchmark BOLD yields against other opportunities using data sources like DefiLlama so you understand how returns compare across DeFi. Yields move with liquidation activity and total deposits, so treat any figure as a snapshot rather than a fixed return. Keeping some BOLD in the Stability Pool can also pair well with an active borrowing position, since you stay engaged with the same collateral branch you are exposed to.

Risks and Safety

Borrowing in DeFi carries real risks. Keep these points in mind:

• Liquidation: if your collateral value falls and your loan-to-value rises too high, your position can be liquidated. Keep a buffer.
• Redemption: a low rate increases the chance of being redeemed against first.
• Smart contract risk: no protocol is risk free. Use only the official app and verify contract addresses.
• Volatility: ETH and staking token prices move quickly, which affects your safety margin.
• Phishing: bookmark the official site and never approve transactions you do not understand.

This article is educational and is not financial advice. Do your own research and only commit funds you can afford to manage.

Conclusion

Liquity V2 gives borrowers a level of control that is uncommon in DeFi. You choose your collateral, your loan size, and the interest rate you pay, while a transparent redemption system keeps BOLD anchored near 1 dollar. The trade-offs are clear once you understand them. A lower rate saves money but raises redemption risk, the upfront fee rewards stable rate choices, and the Stability Pool offers a way to earn with the BOLD you hold. Start small, monitor your loan-to-value, and pick a rate that fits how actively you plan to manage your position.

Understanding Liquity V2's Dynamic Redemption Mechanism

Liquity V2 introduces a sophisticated redemption mechanism that goes beyond traditional liquidation systems. Unlike platforms that force a sale of collateral at market prices during a liquidation event, Liquity V2's redemption process is designed to maintain the peg of BOLD to USD and ensure system solvency without direct market intervention by the protocol itself. It allows any BOLD holder to redeem their BOLD for an equivalent value of ETH collateral from the riskiest Troves, those with the lowest collateralization ratios.

This mechanism is crucial for BOLD's stability. When BOLD trades below its peg, arbitrageurs are incentivized to buy BOLD on the open market and redeem it for ETH at the par value of 1 BOLD = 1 USD worth of ETH. This buying pressure helps push BOLD's price back towards its peg, while simultaneously removing ETH from the system's riskiest positions, thereby improving the overall health of the protocol. Understanding how this system works is fundamental for both borrowers and Stability Pool depositors.

Practical Implications for Borrowers

• Your Trove's collateralization ratio is paramount. Maintaining a higher ratio significantly reduces your risk of being redeemed.
• Redemptions are ordered by collateralization ratio, starting with the lowest. A well-collateralized Trove acts as a strong buffer.
• During a redemption, your ETH collateral is taken and BOLD is repaid to you. This reduces your debt and your collateral proportionally.
• You do not incur a liquidation fee during a redemption, only the standard redemption fee, which is dynamic and typically very low.
• Monitor the overall system's collateralization and BOLD's market price to gauge potential redemption pressure.

Related Guides

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• EVAA Protocol Tutorial: TON Lending and Borrowing (2026)
• Borrower Diversity vs Whale Borrowing: How Concentrated Loan Demand Creates DeFi Risk

Frequently Asked Questions

What is BOLD on Liquity V2?

BOLD is a stablecoin that users can borrow on Liquity V2 by depositing collateral into the protocol. It is designed to maintain a stable value while letting users access liquidity against their assets.

How does borrowing on Liquity V2 work?

A user deposits collateral and opens a borrowing position to mint the stablecoin, keeping their collateral as long as the position stays sufficiently overcollateralized. Repaying the debt allows the collateral to be reclaimed.

What is the Stability Pool used for?

The Stability Pool is a mechanism where users deposit the stablecoin to help absorb liquidations and keep the system solvent, often earning rewards for doing so. It is a core part of how the protocol manages risk.

What is redemption risk in this kind of protocol?

Redemption risk refers to the chance that your collateral position is affected when the stablecoin is redeemed against the system to maintain its peg. Understanding how redemptions work helps borrowers manage their positions.