Charging a 3% interest is the same as not paying any interest as the cardano staking already gives around 3% per year. In my opinion, any discussion should start with a value higher than the average ADA staking yield. Otherwise it’s a free loan and we end up at the same point we are now.
Therefore, a 20% rate doesn’t seem too high. At the time I am writing people are paying +30% on DJED, DAI, USDC/T within Liqwid (to stay in the cardano ecosystem). If you check at Lenfi, they are charging +60% for DJED (and is over 100% for iUSD because of high utilization).
People using leverage are willing to pay that annual 20% as long as they see opportunities of further gains. Taking this into consideration, and adding the excess supply of iUSD in the market, I think a 20% rate is around the optimal ballpark to help with peg stabilization, we will have a competitive rate compared to other protocols, and all of this without having big impacts in the utilization of the protocol. If needed (and at some point down the road during bear mkt we will need it), we can further discuss to decrease the interest rate.
Great question,
Users who purchase iUSD in the open market doesn’t have the same interest cost. That means they will be earning the full rewards without interest.
The interest will initially be accrued to the DAO Treasury. In the longer term there are plans to direct those revenue back towards stability pool to create a more balance approach between different type of users eg non-levered cdp owners, spot holders and leveragers. This would make Stability Pool being more driven by real yield paid by users who choose to leverage.
That would take some time for the treasury to build sufficient buffer for such rewards, in the meanwhile SP will still be receiving INDY rewards.
Got it. I think that’s fair enough to want to build a buffer. The suppliers to the SP are taking on a form of insurance risk, and just want to add my two sats they should be fairly compensated. Which may mean a lower % return than they’re enjoying now, but I think 3-5% is probably too low since the risk-free-rate of ADA is already 3%. Is there an exact number for the buffer that’s been mentioned?
I think interest is a great solution to fix the peg. With interest too high, you’d actually have the reverse issue where nobody would want to open a CDP to begin with and everyone would buy iUSD on open market to avoid the fees, causing a de-peg to the positive. I think a good direction (if we’re not already heading there) is to make the interest rate set automatically by a demand curve rather than voted and static.
The suppliers in SP doesn’t distinguish between someone who bought off exchange or someone who has borrowed. But in overall, I understand your concerns on users who are borrowing just to deposit into SP.
As mentioned in the proposal, it is possible to direct the interest revenue to SP sometime after launch after it accrue sufficiently. This means potentially double yield on SP which could soften such impact.
If there is an overpeg, it would allow use cases such as borrowing iUSD to spend it for other stuffs again.
I am not saying that default interest rates should be 3-6% and it should not be 20%.
what i want to say here is that we cannot compare Indigo with the other lending and borrowing protocol because in those protocols your position stays open till it reaches the liquidation thresholds, protocol doest change the percentage of leverage, but when it comes to Indigo CDP holders positions will get altered by RMR mechanism.
i agree that for short term 3-4 months rates needs to be high to create stability and reserves for tackling future problems.
when i said keep interest rates low, what i ment to say was to keep the protocol capital efficient and attractive to use, when you compare our rates to other new age stable coin protocols like LIQUITY or KUJIRA our proposed interest rates are too high.
Liquity unlimited redemption resulted in its market cap reducing by 50% while average collateral went over 600% making it not so capital efficient after all.
Kujira does it via minting cap limit making it not scalable resulting in 8m token minted, they offset this demand towards their self owned lending borrowing market resulting in 65% borrow interest rate.
The more i thought about it, i realised that high interest rates in the bull market makes sense.
but 1 year from now when the bear market will start, can we keep the interest rates that high if we want the protocol to grow in TVL ??
how will we decide the rates later in the future ??
will there be any study or random guess by the community dao about the rates setting ??
and just wanted to know a few things about how much and where will the interest rates income will be utilised ??
how much will be used to create a stability pool ??
When iUSD in short supply, meaning if a consistent overpeg happens, the interest can be lowered.
For interest revenue, it will be towards DAO Treasury initially as interest will take time to accrue and be paid.
As for the uses, it is outlined in the proposal that primary focus is towards strengthening the peg. which can be via rewards towards stability pool to increase its rewards.
Hey,
I was curious to know if there was any brainstorming about bootstrapping a stability pool throgh sale of INDY tokens to an institutional player or any OTC deal ?
dont you think if we have something like a million dollar Stability pool at start which contantly gets refilled by the revenues from interest and arbitrage would solve the problem for both short term and long term ??
