As soon as you tether these 0% rate markets to something else, you are suddenly dealing with real like risk that cannot be ignored.
> LUSD also benefits from less direct mechanisms for USD parity — called "soft peg mechanisms". One of these mechanisms is parity as a Schelling point. Since Liquity treats LUSD as being equal to USD, parity between the two is an implied equilibrium state of the protocol. Another of these mechanisms is the borrowing fee on new debts. As redemptions increase (implying LUSD is below $1), so too does the baseRate — making borrowing less attractive which keeps new LUSD from hitting the market and driving the price below $1.
That is not entirely true though; it costs money to redeem LUSD for ETH. Earlier today it was 2%, so not particularly cheap. That would put the floor at 0.98 at least momentarily.
Well, you do have to pay to take out a loan. Closing a loan is free, and redeeming LUSD for ETH (if it's not your loan) costs _at least_ 0.5%. And being liquidated costs you money (10%?) as well I guess.
> What happens if many people do that and never repay the loan?
Nothing? What do you think is supposed to happen?
> you are suddenly dealing with real like risk that cannot be ignored.
The only risk I know of is a cascade. If a trove drops below 110% because the ETH price drops, and someone liquidates the trove and gets the ETH at a 10% discount, and then _sells_ the ETH, the price drops even more causing other troves to be liquidated, etc.
Crypto has no global risk manager in charge of keeping the total sum of algo stables small enough to be safe.