I’m very interested in the Indigo Protocol project and trying to understand everything the best I can. My question comes related to collateralization of assets with a fixed supply, having in mind Bitcoin.
As stated in the whitepaper:
So, for example, we can lock up some collateral to create a synthetic asset called iBTC that has the same value as Bitcoin on the Blockchain without having any real Bitcoin in the first place.
Let’s say 1000 iBTC have been created with an average price of 40000$, so the collateral amount of USD deposited is 40M$. At this point, BTC price is catapulted to 60000$. We still have 40M$ of collateral that would have to cover this 1000 iBTC, and we are 20M$ shy of covering everyone. How is this problem solved/prevented?
Also this parallel trading of iBTC can’t affect the price of BTC, right? It’s like trading paper pegged to the value of BTC via Oracles. Could a high volume of trading in iBTC break this pegging somehow?
I’m pretty sure it’s covered in the whitepaper but can’t wrap my mind around it, a simplified example would help.