Liquity removed the thing that makes most stablecoins a governance question. There are no keys, no upgrades and no votes. The contracts deployed in 2021 are the contracts running today, and nobody can change what backs LUSD or how it behaves.
Why direct redemption enforces the peg
Anyone holding LUSD can redeem it for ETH at face value from the riskiest open positions. If LUSD trades below a dollar, redeeming becomes profitable, which buys LUSD and closes the gap. That arbitrage is mechanical and permissionless, and it is a stronger peg mechanism than a peg keeper or an issuer's promise.
The cost to borrowers
Redemption falls on the lowest-collateralised positions, so a borrower running close to the minimum ratio can find their position partially closed against them without warning. That is the trade-off for the peg's strength and it is well documented — borrowers should keep buffer above the minimum.
Why it stays small
Immutability means no new collateral types, no parameter changes and no adaptation. Building on LUSD is building on something fixed, which is safe and inflexible. Liquity v2 introduced a separate system with more features while leaving v1 running untouched, which is the correct way to handle that tension.
Who should use it
Users who want a stablecoin backed only by ETH with no governance surface, and borrowers who want interest-free debt with a one-time fee and will manage their collateral ratio actively.