Lucia Protocol is a decentralized financial platform that optimizes borrowing, lending, and liquidity management through innovative mechanisms like collateralized debt positions, flash loans, and staking rewards. Its framework prioritizes financial stability and efficiency, offering participants tools to manage assets and risks within a transparent, blockchain-based ecosystem. ^[1]

Overview

Lucia Protocol is a non-custodial lending and borrowing platform that provides credit access for individuals and startups. It incorporates a credit evaluation system that uses both on-chain and off-chain metrics to determine eligibility, supporting short-term needs and long-term financial goals. Users can participate as lenders, earning returns from interest and platform revenue, or as borrowers, accessing loans based on a streamlined credit scoring process. The platform offers collateralized loans with up to 100% of the collateral's value and distributes rewards through its LUCI tokens. To maintain privacy, it uses zero-knowledge proofs for credit score evaluations. Built on the Polygon network, Lucia supports various cryptocurrency assets, including USDC, USDT, DAI, AVAX, ETH, and MATIC. ^[2][3]

Features

Attribution Credit Scoring

Lucia Protocol's Attribution Credit Scoring System evaluates borrowers' creditworthiness using a multi-dimensional approach that combines on-chain and off-chain data. On-chain data includes transaction history and blockchain interactions, while off-chain sources incorporate external financial information such as credit history and employment records. The system provides a detailed assessment of borrowers' financial standing by analyzing various financial activities and behaviors. This integration reduces dependence on single data sources, offering a more accurate and reliable credit evaluation. ^[4]

Low Collateralized Ratio

Lucia Protocol offers a 100% collateralized ratio, allowing borrowers to access credit equivalent to the full value of their collateral. This approach contrasts with traditional systems that require collateral exceeding the loan amount, often limiting borrowers' financial flexibility. By enabling borrowers to leverage their assets fully, the protocol enhances accessibility and provides a more inclusive credit framework. ^[5]

Credit Default Insurance (CDI)

Lucia Protocol's Credit Default Insurance (CDI) protects credit defaults through risk pooling, transfer, and indemnification. Borrowers pay an upfront premium, calculated using proprietary risk metrics, to fund a reserve called the "insPlot," strategically invested to generate additional revenue and support new policies. The protocol balances risk exposure using diversification and risk management techniques while maintaining competitive premiums covering operational costs and claims. In the event of a default, the CDI compensates creditors, ensuring system stability and solvency. ^[6]

Lender & Borrower Rewards

Lucia Protocol incentivizes both lenders and borrowers through a structured reward system. Lenders contribute supported assets, such as USDC, USDT, AVAX, MATIC, and ETH, to liquidity pools, enhancing the protocol's liquidity and efficiency. For diversified engagement, they can fund specific asset pairs, like USDC/MATIC. The protocol plans to issue NFTs representing bundled assets and liquidity, which grant access to rewards and interests. These NFTs are tradable on secondary markets, allowing lenders to exit positions before loan maturity. ^[7]

Lenders

In the Lucia ecosystem, lenders contribute to liquidity pools by providing supported tokens like USDC, USDT, AVAX, MATIC, and ETH and are rewarded for their role in facilitating transactions. A bond mechanism allows lenders to supply liquidity as debt securities. Lucia issues bonds with defined terms and maturity dates, committing to repay the principal and interest ("coupon") upon maturity. Bonds are issued at discounted rates, and lenders lock their funds until maturity to earn the agreed interest. Less volatile than stocks, these bonds may also be traded in secondary markets. Lenders may share in revenue generated from insurance premiums and investment returns. They also receive stLCI governance tokens, granting voting rights and an ownership stake in the protocol. ^[8]

Borrowers

Borrowers in the Lucia ecosystem can earn rewards through responsible financial behavior. Maintaining a strong credit score and timely loan repayments can lead to discounted insurance premiums. Borrowers who fully repay their loans without penalties are eligible for a 3.5% cashback, provided in the native LUCI token. ^[9]

Virtual Credit Card

Lucia plans to introduce a virtual credit card for borrowers, enabling tangible transactions with transaction fees lower than traditional credit card charges. Borrowers who settle their loans successfully can earn up to 3.5% cashback, promoting responsible borrowing and timely repayment while providing additional financial benefits. ^[10]

Flash Loans

Lucia Protocol incorporates flash loans to address the challenge of credit risk by enabling credit transactions without borrower default risk. These loans are repaid instantly within the same transaction, eliminating unpaid principal and interest concerns. Flash loans support various decentralized finance (DeFi) applications, including automated market makers (AMMs), decentralized exchange fees, and collateral management.

Flash loans benefit both liquidity providers and borrowers by offering opportunities for optimized rewards and efficient financial operations. Internally, they enhance the protocol's functionality by refining market-making strategies, maximizing treasury revenue, and managing collateral liquidations. Treasury earnings from flash loans include collected fees, while a portion is reserved for liquidity or other operational needs. ^[11]

Barns and Sheds

In the Lucia Protocol, "Barns" group collateralized assets, while "Sheds" function as individual vaults for managing loans and collateral. Each Shed represents a Collateralized Debt Position (CDP), segregated by asset type to reduce risk. Users manage Sheds by depositing or withdrawing collateral and repaying debt, focusing on maintaining a favorable collateral-to-debt ratio (CDR). To close a Shed, users must fully repay their LUCI token debt, unlocking the collateral and clearing financial obligations. This modular design promotes flexibility and minimizes risk, offering detailed insights into each Shed's CDR to support informed decision-making in lending and borrowing. ^[12]

Silos

The "Silo" serves as a reserve mechanism within the Lucia Protocol to maintain financial solvency. It liquidates Sheds with compromised collateral-to-debt ratios to ensure that LUCI tokens remain fully collateralized. When a Shed is liquidated, its LUCI debt is removed from the Silo’s reserve, and the collateral is transferred into the Silo.

Users can participate as Silo Contributors by depositing LUCI into the Silo, targeting specific collateral types. In return, contributors receive a share of the liquidated collateral, gradually replacing their LUCI deposits with other assets. Insurance premiums and administration fees associated with the liquidation process further enhance the value of the collateral gained, making participation financially beneficial. This mechanism incentivizes contributors while reinforcing the protocol’s stability. The Silo mechanism, alongside the Barn and Shed framework, provides a comprehensive system for risk mitigation, asset management, and financial rewards, ensuring the protocol's long-term stability and solvency. ^[13]

Plots

The "Plot" in the Lucia Protocol centralizes various revenue streams, including merchant processing fees, outstanding balance rates, repay balance rewards, insurance-related fees, loan liquidations, flash loans, discount swaps, and bonds. After deducting a 1% oracle maintenance fee, the remaining revenue is allocated to stLCI holders as rewards. When users stake LUCI tokens, they receive stLCI tokens, which grant them a proportional share of the Plot’s revenue. This system incentivizes participation and aligns user rewards with the protocol's financial growth.

The Plot also underpins key stability mechanisms within the Lucia Protocol, including the Low Collateralized Ratio (LCR) for efficient capital use and an algorithmic system for maintaining token price stability. Dynamic adjustments to factors like interest rates and minting or burning rates ensure resilience across varying market conditions, supporting long-term stability and scalability. ^[14]

LUCI

LUCI is a stablecoin backed by a treasury reserve, designed for simplicity in digital asset transactions. Users can mint LUCI by pledging stable assets like USDT, USDC, and DAI to the treasury, which provides liquidity and allows redemption of the original assets upon repayment of minted LUCI. Built on the Ethereum blockchain, LUCI offers secure storage across Ethereum-compatible wallets and is supported by platforms accommodating Ethereum-based tokens. 

Once minted, LUCI functions like other cryptocurrencies, enabling transfers, payments, and participation in the Lucia Protocol ecosystem, including staking through stLCI. Each LUCI token is fully backed by collateral assets in the treasury, ensuring the collateral value exceeds the total circulating supply. All transactions on the Ethereum blockchain are transparent and verifiable. The treasury currently includes USDT, USDC, and DAI, with plans to expand to additional stable assets to enhance LUCI's stability and resilience. ^[15]

LCI

The LCI token is a secondary Lucia Protocol asset designed to reward early users and support liquidity. LCI is converted to stLCI when staked, granting holders a share of the protocol’s revenue generated from various fees. LCI also facilitates liquidity provision by enabling users to contribute to the LUCI liquidity pool in exchange for LCI tokens. These tokens can be staked for additional rewards through stLCI. LCI strengthens the protocol’s liquidity and stability by combining incentives and liquidity utilities. ^[16]

Tokenomics

LCI has a fixed supply of 100M and has the following distribution: ^[17]

• Treasury: 33%- Community Rewards: 17%- Team/Advisory Board: 15%- Marketing: 10%- Public Sale via Reg A Tier 2 Offering: 10%

stLCI

The stLCI token is the staked version of the LCI token within the Lucia Protocol. It is earned by staking LCI or directly contributing liquidity to a designated "PLOT." stLCI holders gain access to revenue streams generated from merchant processing fees, outstanding balance rates, loan repayments, insurance premiums, flash loans, bonds, and more.

The protocol incorporates a lock-up period mechanism, where users select the duration for staking their LCI. Longer lock-up periods increase the weight of stLCI tokens, directly impacting the user’s share of fee-based revenue. This structure incentivizes extended commitments, offering higher rewards while supporting the protocol's liquidity and financial stability. The weighting mechanism fosters long-term engagement and contributes to the protocol's resilience. ^[18]

Partnerships

• Movement Labs
• CoinSub
• Cube3
• FractalID