Adjustment of iUSD Minimum Collateral Ratio (MCR) from 150% to 190%

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1. Introduction – Design of Indigo

iUSD is a cryptocurrency asset designed to mimic the price action of USD. Its price on decentralized exchanges is influenced by Indigo’s rules, aiming to match the USD.

Each iUSD is backed by collateral in a Collateralized Debt Position (CDP). This collateral value must always exceed the Minimum Collateral Ratio (MCR), as set by the DAO.

According to the Indigo paper, specifically section 2.9, if iUSD drops in price relative to its peg, it provides CDP owners an opportunity to buy iUSD to repay their loan at a discount. This can cause buying pressure on iUSD to rise its price. If there is an abundance of iUSD supply, Indigo can increase MCR towards the iUSD mode CR.

Each CDP has its own CR. The iUSD mode CR represents the most frequent CR value users select for their CDPs. By moving MCR towards the mode CR, probability of liquidation increases, incentivizing users to close their CDPs, which can cause iUSD buying pressure and reduced iUSD supply.

A higher MCR results in a higher cost to mint iUSD supply, reduces the maximum leverage utilizable, and increases the margin of arbitrage value for Stability Pool stakers. This creates a disincentive to create new iUSD supply and incentivizes users to buy existing iUSD supply to stake into the Stability Pool. The reduction of supply paired with the increased buying pressure can push iUSD price upwards.

2. Current situation

Currently, iUSD is trading around $0.87, and the iUSD mode CR is at 295%.

The proposal to raise the MCR of iUSD to 150%, followed by a gradual rollback to 130% over 40 days, was approved on November 26th. However, its implementation was delayed until December 1st. When the off-chain poll commenced on November 16th, iUSD was trading at $0.82. Since then, its trading value has fluctuated between $0.82 and $0.95.

Given the current market conditions, which show a high demand for leverage as evidenced by Liqwid’s 7.4% interest rates on iUSD and over 16% on other stablecoins, it’s crucial to align the cost of minting iUSD with these market dynamics. Although an immediate correction was not anticipated, the current market volatility indicates that a 150% MCR might not be sufficient to ensure price stability.

3. Proposal details

I propose an immediate increase of iUSD’s MCR from 150% to 190%. This change overrides the previous “MCR Rollback Plan” to 130%. The adjustment aims to stabilize iUSD’s price and realign it with current market conditions, ensuring its peg to the dollar and addressing the increased demand for leverage.

The rationale for proposing a 190% MCR is as follows, with Liqwid’s annual borrowing rate for iUSD at 7.4%, and considering that the cost of minting iUSD is 2% on the collateral, Indigo users would require a CR of 370% for an equivalent deal (for a one-year term). This implies that Indigo could be more favorable for longer-term ADA leverage (exceeding a year), while Liqwid might be preferred for shorter-term borrowing. Currently, the mode CR at Indigo is 295%. Increasing it to 370% represents a 25% hike. Hence, I propose we raise iUSD’s MCR by 25%, increasing it from 150% to 190%, to better reflect current market dynamics.

4. Conclusion

Indigo is structured with static parameters, where the iUSD’s price on decentralized exchanges is the key variable reacting to market conditions. By design, we can alleviate these fluctuations, adjusting the MCR in line with current market trends. This approach is geared towards maintaining the stability and health of the iUSD within the Indigo ecosystem, adapting to the ever-changing market dynamics.

The aim of this proposal is not to cause the liquidation of any CDPs.

While there may be more effective methods than modifying the MCR, they would require alterations to the core Indigo protocol.

It’s crucial to understand that these MCR changes are short-term remedies. We eagerly anticipate the rollout of Indigo V2, expected to offer more substantial and enduring solutions.

In conclusion, the market should recognize the Indigo DAO’s strong commitment to price stability. Our primary aim is to preserve the protocol’s integrity and protect the interests of our community.

1 Like
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This proposal has the potential to fail miserably like the previous one, as it is much easier for most CDP owners to withdraw iUSD from the stability pool to burn and increase the health of their CDP, without generating pressure to buy iUSD in the market.
In other words, it also reduces the security of the protocol, by reducing the iUSD balance in the stability pool.
They are doubling down. Sad.

15 Likes
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Let the current proposal that we JUST voted on play our first. Indigo’s reputation is strongly on the line here and we need to be careful about making more sudden and drastic changes. I personally will be closing all of my Indigo positions and leaving if this goes through.

Even at 150% the loss of collateral to liquidated CDPs is absurd. Similar protocol on ETH has a system in place where only part of the collateral is lost. Indigo does not have that, and asking people to risk losing nearly half their collateral on a liquidation event is going to destroy all credibility to this protocol.

VOTE NO

9 Likes
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X2 Developers have to be careful with decisions like the ones this gentleman is proposing, this proposal is extremely dangerous to the project, are they going to raise it to 500% tomorrow? Irresponsible people, I have already passed them a proposal. I am noticing very bad decisions to this project. Relax and let the market recover by itself or by itself.

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Are you crazy? Many people leverage not only out of necessity, and you’re going to harm them. Many people get into debt not just to make money, but because they need it. You can’t play with people’s debt. I’m going to look for ways to pay off my debts and leave. This protocol is already scaring me, I will leave as soon as I can return my debt.

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No, no and NO! There should be a minimum cooldown period between MCR adjustments per iAsset.

No Please No GIF - No Please No God No GIFs

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This is an insulting proposal to the community that just voted for a course of action only days ago, please stop. You failed to provide any math or logic behind the increase to 150%. You were told by numerous people it was a bad idea after they provided logical reasoning (such as market sentiment will play a far larger role in the iUSD price). Then you hid behind the community voting yes on your proposal as a “will of the people”, but now you see you were wrong, you make a proposal to immediately override the “will of the people” a few days ago. Can someone please call this for what it is?

By the way, for INDY admins, the fact that this forum only has a like button and you have to manually type dislikes in a post format is in itself a huge bias towards making proposals pass. Please ask your UX lead to confirm this very obvious fact. Sounds like a perfect proposal to add said feature to the forum. This is a DAO within a financial market, not a social media for teenagers. If someone can’t handle a simple downvote on their proposal they should stick to facebook. :rofl:

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Hell no, stop this shitshow. The protocol must be stable and predictable for the users, so that there can be trust. These massive MCR hikes are undermining that.

We need to wait for the long-term solution.

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how bout a constitution to set measures on changing existing CDPs. some of these proposals cross the line for fair practices.

if people who rule indy governance dont actually have cdps themselves or whip up ideas to fix a broken peg at the expense of the clients of the protocol then there should be some statutes to protect clients

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I am really getting lost with recent proposals to tend to maintain iUSD peg… and I would need further explaination about subsequent motivations…

  1. does iAsset needs to maintain peg in any decentralised exchanges at any time ?? I mean, iUSD pricing on Abracadabra Dex is really under control of Indigo and should it be ?

  2. why do proposals only apply to iUSD??? I mean indigo protocol has been design for generating synthetic assets so what would be the point not to implementing those on iBTC, iEth and so forth?

I feel that the team has done a great job developing this platform but I am now getting lost by the obsessive quest to create a stable coin protocol… I think djed is designed for that…

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Ridiculous. You are singlehandedly killing the protocol by not understanding your value proposition.

Without redemption there will be no strong peg of any kind. It will drift up or down as market dictates

1 Like