Decrease INDY SP emissions to match LP

tl;dr: Stability Pool INDY rewards ought to be reduced to the same level as Liquidity rewards to improve the longevity of the protocol.

A high allocation of INDY emissions were allocated to Stability Pools with the assumption that rewarding Stability Pool stakers was critical for iAsset price stability. Because of lack of real-world utility of iAssets, the most common use case for iAssets is to stake them in the Stability Pools. This, it turns out, is a highly profitable use case because of the excessively high emissions.

High emissions directed towards Stability Pools reduces the incentive to stake iAssets in DEXs. Due to lack of liquidity in DEXs, iAssets tend to become depegged to the upside. This is evidenced by each of the three iAssets regularly trading above their intended pegs. (iUSD currently trading 4% above peg, iETH 5% above, and iBTC 7%).

High emissions also lead to unnecessary selling pressure of INDY, pushing its price down.

High emissions wouldn’t be problematic if it was paired by significant TVL growth. Unfortunately, Indigo’s TVL growth has been negative relative to emissions. The majority of TVL growth as of late has come from the increase of price of ADA.

TVL growth denominated in ADA shows stagnation

During this period of stagnation, over 107k INDY was unlocked, reducing the market cap to TVL ratio. With each unlock has come a dumping of INDY, pushing its price lower as a result. This price drop is rationally justified because the TVL remains the same meanwhile more supply of the token is emitted.

To change this rational market behavior, either the inflation must be reduced or the TVL must increase. TVL is not something we have direct control over, but inflation is.

Thus, I propose to change Stability Pool emissions to match that of Liquidity emissions. Hence, from the moment this proposal (if passed) is executed, Stability Pool rewards would reduce from 28,768 to 4,795 per epoch. 4,795 INDY would continue to be emitted per epoch until 21-Dec-23, when it would increase to 9,590 INDY the same as Liquidity emissions.

Stability Pool rewards should be reduced to match Liquidity rewards because both aspects of the protocol are equally important. Stability Pools ensure liquidity for liquidations to maintain overcollateralization; Liquidity pools ensure liquidity for buying/selling to maintain price pegs. The protocol can survive with much lower deposits in the Stability Pools because of the arbitrage between liquidation price and the oracle price.

Having Stability Pool saturation of over 80%, as is the case for both iBTC and iETH, is not only unnecessary but also harmful. Liquidity providers take on higher risk in the form of impermanent loss and yet are rewarded significantly less than Stability Pool stakers (who take on very low risk). By equalizing the rewards for both types of users, it’ll incentivize more liquidity into the DEXs. The current tripe-figure APRs for Stability Pool stakers is excessive and unsustainable unless TVL growth rapidly accelerates.

The rewards given to liquidity providers has proven to be effective at incentivizing liquidity. There’s no reason to increase (or decrease) the Liquidity rewards; instead, the goal is to reduce the Stability Pool rewards. A reasonable target is to make both rewards match. In essence this will increase the rewards for liquidity providers due to the percentage increase relative to total emissions – 13% rewards being increased to 40% rewards. (The split will be 40% to Stability Pools, 40% to Liquidity, and 20% to Governance.)

The unallocated INDY should be withdrawn from the rewards wallet and distributed to the Indigo DAO Treasury (which would be roughly 8.3M INDY, depending on the time this proposal is approved and executed). The Treasury is underfunded and adding more INDY into the Treasury will better equip the DAO to survive in the future and undertake growth initiatives. The Treasury currently only contains about 4.5M INDY. Distributing the INDY from the Stability Pool stakers to the Treasury effectively almost triples the amount of capital the DAO will have to be able to use for growth (paired with potentially increased price of INDY to further capitalize).

The benefits of voting in favor of this proposal include:

  • More stable iAsset prices due to increased incentive to stake in DEXs
  • Less risk of iAsset depegs to the upside due to less iAsset buying pressure
  • Higher price of INDY due to lower inflation
  • More INDY staking rewards due to emissions
  • Make the protocol more sustainable in the long term

One downside of approving this proposal is it’d lead to potentially inaccurate Adaptive Quorum Biasing calculations in the future. This could be fixed by introducing another proposal to adjust the protocol parameters to match the new reduced inflation rate. Even if this is not done quickly, it doesn’t harm the protocol in any way. Instead, it may make future proposals slightly more difficult to pass due to a higher quorum threshold.

In my view, the advantages strongly outweigh the disadvantages. Rewards will still be high, though not as insanely high as they are now. Stability Pool stakers will continue to earn liquidation rewards and will further benefit from the ability to compound their yield due to more stable price pegs. INDY will continue to be distributed to the community at a reduced inflation rate to better align with TVL growth.

The sooner this proposal is executed the better, because it’ll benefit all Indigo DAO members by improving iAsset price stability and increasing the value of the token.


Really well said and put together - with tvl growth slowing to a crawl and indy holders really under incentevized to hold indy given the market conditions and comparitively tiny reward allocation for staked indy - i think this proposal is justified. If i would modify it i would allocated slightly more ince tives to indy holders who are the backbone and owners of the dao and control the future of the protocol.

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Makes sense all you wrote. Maybe we have to decrease Stability Pool INDY rewards little by little till it get the same level as Liquidity, like doing the process in 6 or 12 epochs.

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There is incentive to hold INDY, it’s just not keeping pace with the inflation. If inflation was flat for a while then it’d give a chance for the market to create demand for the token. You can still earn ADA by staking INDY. As the protocol grows, this ADA yield should also grow. Unfortunately the ADA yield can’t outpace the INDY inflation.

This is a reasonable idea, but as far as I can see there’s no problems with the governance system. Lots of INDY is being staked. There is high participation with all the proposals so far. Without a clear problem in sight I think it’s better to leave the governance system as-is and focus on the iAsset rewards that have clear problems.

I’ve thought about this but I don’t think it’ll provide much value. We can consider it though if others agree. Given that there should be plenty of notice given, and that markets tend to adapt quickly, I think doing a sudden drop in rewards will be fine. The transition in MCR for iUSD went fine because there was notice. This notice is effectively the same as staggering because users can plan ahead accordingly.

I’d like to expand a bit on this: “Because of lack of real-world utility of iAssets, the most common use case for iAssets is to stake them in the Stability Pools”. There are current use cases for iAssets. Besides staking on governance, you can lend/borrow iUSD or INDY at AADA finance for example. And it is just a matter of time until Liqwid accepts the iAssets too. And don’t forget all the other dApps that will be launching soon that might use the iAssets. Of course no one likes to see INDY price tanking like that, but I don’t think the problem is as big as people are saying.

“Liquidity providers take on higher risk in the form of impermanent loss and yet are rewarded significantly less than Stability Pool stakers (who take on very low risk)”.
Liquidity providers are also earning incentives from dex (MIN/WRT/MYIELD) + INDY, while the SP only have INDY as incentive to keep the protocol solvent. If the proposal to decrease the rewards to 4,795 INDY passes as suggested, there will be a lot of people leaving the stability pools and the protocol is now at a greater risk of an attack. There was plenty of time to discuss this INDY allocation and release schedule before Indigo went live and this was never a problem until weeks ago. If we think that INDY release is being released too much and too fast, then why would you propose to distribute more INDY to the liquidity providers? That is not addressing the, allegedly, “inflation problem” at all. We had months for discussion before Indigo went live and we approved this schedule without any major concern. And this discussion (about INDY inflation) just appeared after INDY reached 6 or so ADA.

We are still in a bear market, everything is going down, not only INDY. We need to be patient and to calm down because money will flow when we have more dApps, and when BTC bottom is clearly defined. It will take time but we are closer to this day.


Very well put together!

But, having enough Liquidity in the SPs is extremely important. The protocol only works when there is enough Liquidity in it’s SPs.
Even with extremly low TVL in Liquidity Pools the Protocol itself would still function.

On the other hand enough Liquidity in the DEXes is imperative for adoption and real world use of iAssets.

As much as I enjoy the high emissions I support the general direction of your proposal.
I don’t think this should be the final proposal though.

SP incentives need to be high enough to ensure the stability of the Protocol. How much of the Total value should be in the SPs to ensure protocol safety I don’t know.

Can someone with a background in economics calculate the ideal saturation level of the SPs? And how high the incentives need to be to match that?

At the same time we can also increase the liquidation Threshold of iBTC and iETH to 120%, to add more incentives for SP Providers.

I am in line with what u think.

even without liquidity pool protocol should and must function on thus the importance of Stability Pools.
so naturally SP will have a higher reward base.
INDY price by itself isn’t the right measure.

I would suggest the following

  1. removing of staking lp tokens on Indigo Protocol
  2. allocate the original INDY rewards to the DEXes for their individual double yield farm.

This will allow the DEXes to do their own form of marketing and incentives while Indigo is able to maintain a neutral position on DEX favouring.

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Very well written and thanks for taking the time to point out the specifics. I am in line with something like this, but do you feel like it will be a mass exodus of people leaving SP? Also can we reward stakers in a scenario like this a bit more than sellers? I’m not sure how it would be possible but this is a good starting point you bring up!

Great Idea to have the DEXes handle this and increasing rewards this way!

The situation has changed thought, for iBTC and iUSD. With the whale joining.

Iguess we have enogh liquidity there for now?