Liquity V2 lets you set your own borrowing interest rate. This is very different from most lending protocols where the market or governance decides the rate. Choosing your own rate means you can push your borrowing cost very low, but the trade-off is: the lower your rate, the higher your Trove's priority for redemption. Choosing a rate is essentially a balance between "paying less interest" and "reducing the risk of being redeemed."
A leading global cryptocurrency platform,suitable for both beginners and experienced traders.
New user benefit: 20% off trading fees upon registration!！
Choosing Your Rate: First Understand How Redemption Order Works
Redemption is the core mechanism Liquity V2 uses to keep BOLD pegged to $1. When BOLD is trading below $1 on the market (and there is still an arbitrage opportunity after subtracting the redemption fee), anyone can use BOLD to swap for ETH or LST collateral from the protocol at face value. This process starts from the Troves with the lowest interest rates, reducing their debt and collateral one by one.
This means your rate determines your position in the redemption queue. Set a relatively high rate, and you have more debt from lower-rate borrowers in front of you as a "buffer," greatly reducing your chance of being redeemed. Set a low rate, and you save on interest, but someone could repay your debt and take your collateral at any time.
An easily missed detail: If multiple Troves have exactly the same interest rate, the protocol uses a "last-in-first-redeemed" rule. The Trove that most recently set or adjusted its rate will be redeemed first.
How Much to Choose: Look at the Distribution and the Debt-in-Front
The Liquity V2 frontend shows an interest rate distribution histogram, letting you see what rates other borrowers have set. More importantly, there is the "Debt-in-front" metric — it tells you how much BOLD needs to be redeemed before your Trove is touched. The larger this number, the safer you are.
There are two basic paths when choosing a rate:
Users who actively monitor and borrow for a short period can choose a lower rate. You pay less interest, but you need to watch the BOLD price and redemption activity, and manually adjust your rate if necessary to protect yourself.
Users who prefer a passive, long-term position are better off setting a relatively high rate. You pay a bit more interest, but you get a thick enough "debt-in-front" buffer so you don't have to constantly watch the market.
The official documentation expects the average interest rate to be roughly similar to borrowing ETH on Sky or Aave, but because users can set their own rates, some users may pay significantly lower rates during certain periods.
Adjusting Your Rate Has a 7-Day Cooling Period Fee
You can change your rate at any time, but if it has been less than 7 days since your last adjustment (or opening), a "premature adjustment fee" is triggered. This fee equals 7 days of average interest for the corresponding collateral market, denominated in BOLD, and is added directly to your debt.
This fee is also charged when opening a new Trove or increasing your borrowing. The purpose of this mechanism is to prevent borrowers from temporarily raising their rate right before a redemption to "jump the queue" and avoid being redeemed.
If you plan to adjust your rate frequently to optimize costs, these fees will add up. The gas cost of manual operations plus the premature adjustment fee can eat into a lot of the savings from paying less interest.
Don't Want to Manage It Yourself? You Can Delegate Rate Management
Liquity V2 supports Interest Rate Delegation. You can hand over rate management to a third party, an automated contract strategy, or another wallet you own. The delegate can only adjust the interest rate; they cannot touch your collateral or debt. Their permissions are limited to a preset range.
There is an automated strategy called ARM (Autonomous Interest Rate Manager), running on DFINITY's Internet Computer. It monitors the market every hour and decides whether to adjust the rate based on the "debt-in-front" ratio, redemption fees, and the time since the last adjustment. Its goal is to keep the managed Trove's rate roughly in line with the market average, staying within a 42.5%–57.5% "debt-in-front" range.
If you have a large borrowing position and don't want to spend energy managing the rate manually, delegating to such an automated strategy is an option. The trade-off is that you give up precise control; the strategy only operates within its preset range.
Repayment: Paying Off Fully Closes the Trove, Partial Repayment Lowers LTV
In the Liquity V2 frontend, select your Trove and use the "Pay back BOLD" action to repay. Repayment directly reduces your debt, and your LTV (Loan-to-Value ratio) drops, reducing liquidation risk.
Partial Repayment: Repay some BOLD, your debt decreases, and your collateral stays put. Your Trove continues to operate as long as the remaining debt is not below the minimum requirement (2,000 BOLD).
Full Repayment: After repaying all your debt, you can withdraw all your collateral and close the Trove. If your Trove has been partially redeemed, the debt has already been reduced, so you only need to repay the remaining BOLD.
One thing to note: If your Trove's debt drops below 2,000 BOLD due to redemptions, it enters "dormant operating mode," and some operations are restricted until you top up the debt or repay and close it.
A Safety Mode Restriction You Should Know
When the Total Collateral Ratio (TCR) of a collateral branch falls below the Critical Collateral Ratio (CCR), that branch enters Safety Mode. The CCR for the ETH branch is 150%, and for rETH and wSTETH it is 160%.
After entering Safety Mode, the following operations are not allowed: premature interest rate adjustments (the kind that incur a fee), withdrawing collateral alone, and borrowing more BOLD alone. You can still add collateral, repay debt, or simultaneously add collateral and borrow BOLD (as long as the overall TCR does not worsen). These restrictions are automatically lifted once the TCR rises back above the CCR.
A leading global cryptocurrency platform,suitable for both beginners and experienced traders.
New user benefit: 20% off trading fees upon registration!！
References
- Liquity Docs·Borrowing and Liquidations, published or updated: 2026-02-11; checked: 2026-10-03.
- Liquity Blog·Interest Rate Management in Liquity V2, published or updated: 2024-10-30; checked: 2026-10-03.
- Liquity Docs·Redemptions and Delegation, published or updated: 2025-08-17; checked: 2026-10-03.
- Liquity Blog·Autonomous Interest Rate Manager (ARM) for V2, published or updated: 2025-06-23; checked: 2026-10-03.
- Liquity Blog·Liquity V2 Safety Mode, published or updated: 2025-11-05; checked: 2026-10-03.
- DeFi Saver Knowledge Base·Dashboard & Use-case, published or updated: 2025-11-03; checked: 2026-10-03.
- DeFi Saver Knowledge Base·Borrowing Rates and Redemptions, published or updated: 2025-11-03; checked: 2026-10-03.
