Set your interest rates too low, and you risk getting redeemed. Set them too high, and you’re paying more than you need to. That’s the delicate dance borrowers on Liquity V2 perform every time they adjust their interest rates. Until now.
A new tool called ARM—short for Autonomous Rate Manager—has quietly arrived on the scene, taking this fussy balancing act out of borrowers’ hands and entrusting it to a decentralised robot that never sleeps. ARM is built on the Internet Computer Protocol (ICP), and it manages interest rates for Liquity V2 loans automatically, using data from Ethereum and performing adjustments without asking for permission or needing manual prompts.
Liquity V2 operates on Ethereum and allows users to borrow BOLD, a stablecoin, by locking in collateral such as ETH, wstETH, or rETH. But Liquity V2 doesn’t dictate interest rates—it lets borrowers set them themselves. Lower interest rates are attractive, but they come with higher risk: borrowers with the lowest rates are the first to be hit if someone redeems BOLD for its $1 peg. The protocol ensures stability this way—encouraging borrowers to tweak their rates in response to market conditions. If BOLD creeps above $1, lowering interest rates makes borrowing more appealing. If BOLD slips below, raising interest rates makes holding BOLD more attractive due to higher yields.
All this requires close attention and timely action. Until now, that’s meant borrowers either had to obsessively monitor their loans or place their trust in third-party managers. ARM changes that. Sitting on ICP, ARM runs as a fully autonomous and decentralised dapp, performing adjustments based on data from Ethereum using Chain Fusion and canister smart contracts. No user intervention is required, and no centralised trigger is needed.
Once a borrower delegates rate management to ARM using a Liquity V2 frontend, the system fetches relevant data, calculates the optimal interest rate, and carries out the adjustment—all automatically. It also minimises gas fees and reduces the likelihood of redemption. ARM isn’t just automated, it’s economical. Its design taps into ICP’s strengths: high throughput, low cost, and interoperability.
The decision to build ARM on ICP was driven by practical concerns. Ethereum is powerful but wasn’t cut out for this kind of heavy lifting. According to Liquity’s Head of Research, Robert Lauko, the platform needed a scalable, decentralised, and affordable foundation to support constant decision-making. ICP fit the bill. Its canister smart contracts, which act like stateful, serverless mini-apps, communicate seamlessly with web interfaces and other blockchains.
ICP’s timer feature is one of ARM’s secret weapons. It’s like a baked-in clock that ticks every hour, triggering the ARM canister to scan conditions and check whether interest rates need adjusting. If so, it crafts and signs an Ethereum transaction using a threshold signature, then submits it. If something goes wrong, ARM is smart enough to try again.
Behind this process is a blend of Ethereum batch manager contracts and the ARM canister running on ICP. Each batch manager contract has a pre-registered externally owned account (EOA) that is allowed to perform interest rate changes. These EOAs are created using ICP’s threshold ECDSA protocol. This means even under adversarial network conditions, only a majority of ICP nodes can cooperate to sign a transaction. No one holds the private key. That adds another layer of protection—no individual can hijack the system or rewrite the rules.
Even ARM’s fee collection and sustainability mechanism runs without oversight. Borrowers pay a small fee when ARM adjusts their interest rate, and a portion of that fee goes towards topping up the canister’s cycle balance—essentially ARM’s energy supply. On ICP, cycles are used to power canisters, like pre-loading a SIM card. ARM converts some of the ETH it receives into cycles, ensuring it always has the resources it needs. There’s even a discount for anyone who helps top up the canister, creating an incentive for self-sustainability.
ARM’s ability to tap into data from Ethereum—like current debt levels, redemption fees, and more—relies on a clever piece of infrastructure called the EVM RPC canister. This canister acts as a bridge, sending requests to Ethereum’s RPC endpoints, gathering responses, and establishing consensus among ICP nodes before making any decision. It adds resilience and precision to ARM’s decision-making, ensuring rate adjustments are based on trustworthy data.
The result is a system that works across two different blockchains, without relying on any central authority. It performs routine but crucial tasks with mechanical regularity and reliability, freeing users to focus on strategy rather than execution.
The arrival of ARM also opens the door to wider possibilities. Because Liquity’s frontend is open-source, developers can deploy trust-minimised interfaces that run directly on ICP, further reducing reliance on centralised hosting services. And ARM itself is just a starting point. The same principles can be applied to other decentralised finance systems. Whether it’s for managing algorithmic stablecoins or other DeFi strategies, ARM’s structure can be adapted and extended.
Chain Fusion, a cornerstone of ARM’s design, enables interaction with multiple EVM-compatible chains beyond Ethereum, such as Arbitrum or Base. That raises the possibility of ARM-like systems managing interest rates or other settings for forks or adaptations of Liquity V2 elsewhere. Developers could even build their own custom strategies on top of ARM’s open infrastructure.
None of this is theoretical. The components are live and operational. Borrowers can delegate rate management today and walk away knowing their loans are being actively managed by software that acts purely in their interest, 24/7, with no personal data collected, no backdoors, and no central levers.
While dapps have been around for a while, most still need someone or something to push them into action. ARM flips that script. It’s designed to operate continuously, with no reliance on human decision-making. It’s closer to a DeFi co-pilot than a tool—one that doesn’t ask questions or wait for commands.
What ARM represents is a nudge toward autonomy in decentralised finance. When smart contracts become smart enough to act without triggers, and when infrastructure like ICP makes that both cost-effective and secure, the possibilities start to stack up. Interest rate managers are one use case, but you could just as easily imagine autonomous portfolio rebalancers, liquidation monitors, or even DAO treasuries that manage themselves across multiple chains.
For now, ARM sticks to one job and does it well. It watches the markets. It checks your loan. It calculates the best interest rate. It signs the transaction. It sends it. Then it waits an hour and does it all again. You don’t need to lift a finger.
ARM is like a metronome in decentralised finance—keeping time while everyone else improvises. It’s patient, persistent, and practically invisible. Which is exactly how automation should be.
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