Proposal: Two Proposed Changes to Rewards: (1) Replace LP Token Staking Rewards with DEX Yield Farm Rewards; and (2) Remove Volatility Factor from Rewards Formula

Two Proposed Changes to Rewards: (1) Replace LP Token Staking Rewards with DEX Yield Farm Rewards; and (2) Remove Volatility Factor from Rewards Formula

TL;DR: This Temp Check involves two suggested changes to the Indigo Protocol rewards structure. The Labs team has consulted with the Indigo Protocol Working Group on these suggested changes. The first suggestion is to replace the current LP Staking rewards feature and with DEX yield farming support (e.g., rewards to DEX users delivered on the DEX along with DEX rewards). And the second is to change the Stability Pool rewards formula to remove the volatility factor (which is a formula based on the past 365 days of an iAsset’s price to help reward).

  1. DEX Yield Farming: The Labs team has been monitoring the feature which enables Liquidity Provider Tokens (“LPTs”) from DEXs to be staked within the Indigo Protocol and earn INDY rewards. The initial intended benefit to the Protocol for distributing INDY rewards to staked LPTs was to incentivize deeper iAsset liquidity on DEXs. However, after reviewing the LPT staking feature since Protocol launch, that benefit did not sufficiently materialize, as has been made evident by the still-relatively low iAsset liquidity on DEXs.

In the current rewards design of the Protocol, a user must choose between staking their LPTs to the Protocol or to a DEX; this can potentially cause a user to miss out on any available triple yield farming opportunities.

We would like to propose decommissioning the LPT staking rewards feature of the Protocol, and replacing it with a feature which provides those same INDY rewards which were distributed to LPT stakers within the Protocol, and distribute them as rewards to iAsset liquidity providers on DEXs instead. The result of this change would be to make it easier for users of a DEX to access triple yield farming opportunities as to the iAssets. We suggest that the same rewards calculations be used for this proposed DEX yield farm support as was used with LPT staking.

To implement this change, Indigo Labs will, as part of its services to the Foundation, work with DEX providers which are whitelisted through the LP token program to build the infrastructure needed to allow the distribution of INDY rewards through each DEX and thereby enable access to triple-yield programs. A key step in the process will be that as each LPT farm is activated on the DEX, the LPT will no longer receive rewards through the Indigo Protocol LPT Staking program. Any transition will of course be announced ahead of time on socials and through the Discord.

  1. SP Rewards Volatility Factor Removal. iUSD has recently seen periods of a downside depeg that has ranged anywhere from 1%-8% under the target $1.00 peg. This is happening as a result of a spike in supply which is part of a normal ecosystem development to find the right self-stabilization incentives to achieve optimal supply and demand balance in an environment with low liquidity on DEXs and growing TVL.

One suggested response to this has been to implement a smart contract-based redemption mechanism. However, that will require an extensive upgrade of smart contracts and will be designed further and implemented as part of the Services Agreement work.

As an alternative step until any redemption mechanism could be adopted, we suggest helping iUSD to maintain its target peg by removing the iAsset volatility factor in the current rewards formula. The iAsset volatility factor is the standard deviation of percentage differences for the 365 daily prices (prices at 00:00 UTC each day) of the underlying asset for the last year. For example, these are the volatility factor numbers for April 24th, 2023:

iUSD: 0.046
iBTC: 0.028
iETH: 0.028

The ratio of these volatility numbers is included in the SP rewards calculation as one of the three components that determines what share of the SP rewards each stability pool gets. The higher the volatility, the less INDY rewards go to the pool. The other two components being the total market cap of each iAsset and the saturation of each stability pool (what percentage of the market cap is in the SP).
The volatility factor was included in the initial rewards formula because it was assumed that highly volatile assets would get more liquidations and thus more ADA rewards, and would therefore need fewer INDY rewards to incent the same beneficial user behavior. The problem is that the rewards formula, with this volatility factor, is currently ignoring the fact that iUSD, despite having a higher volatility on paper, doesn’t get many liquidations at all. Therefore it’s under-rewarding the users staking iUSD to the iUSD Stability Pool relative to the other iAsset SPs.

If this change was to be made, the SP reward distributions for the last epoch (earned during epoch 407, distributed on April 25, 2023) would have been different as shown below:

Actual rewards:
SP reward for iBTC: 8,224
SP reward for iETH: 8,277
SP reward for iUSD: 12,266

What rewards would have been without the volatility factor:
SP reward for iBTC: 6,799
SP reward for iETH: 6,903
SP reward for iUSD: 15,065

The increased rewards to iUSD would, we believe, both help support the peg for iUSD and more correctly reward those SP users according to the actual volatility of each iAsset.

While we believe that this is a necessary change to the rewards structure, we do recognize that some volatility reduction / moderation will likely still be needed for new iAssets during their early epochs when their liquidity is just building up. We propose to address this volatility concern for each new iAssets as it is implemented based on the circumstances at the time, possibly by applying a short-term volatility factor to such new iAsset.

Please let us know your thoughts on these proposals. As always, we are happy to amend this Temp Check to address community preferences for other steps to support the Protocol and specifically the iUSD target peg.

Related to these issues, the Labs team is also working towards open source the Protocol rewards calculator. We have been working for some time on refining the formulas and code. Once we have some direction on this Temp Check and any final changes that may be needed, we will have it ready for open sourcing to the community.


I am not in favor of Proposal #1. Liquidity providers are already enjoying the benefits of at double/triple rewards: ADA staking rewards are returned directly to the pool for both Minswap and Wingriders) and INDY rewards on Indigo protocol. Additionally, Wingriders is providing a third reward with their boosting vault.

Unfortunately, Wingriders also does require you to wait 1 epoch before you are able to harvest any additional rewards, which if they were given the INDY rewards would mean current LPs would not see their INDY rewards accumulate daily. Additionally, they risk losing all their rewards in the epoch if they pull their liquidity. An example being if the CDP needs to be closed or assets needed to be burned due to lowering of collateral, not only are they exposing themselves to impermanent loss and liquidation of their collateral but now they will also be losing their INDY rewards from pulling out before the epoch ends.

The above argument is focused heavily on Wingriders due to it being the DEX with the most liquidity of iAssets but likewise, if the DEXs starts receiving the INDY rewards, how will the INDY rewards be distributed? If Indigo goes with 1/3 to each of the DEXs, then it stands to reason the current pool of liquidity on Wingrider will also get diluted so LP can earn rewards elsewhere thereby actually decreasing an iAsset’s pool.


As much as I like the idea of increasing the rewards for the iUSD (through removal of the volatility factor), I am still wondering if that would be enough. People already have an incentive to buy iUSD (+5.2% at the time of writing) and yet they are not moving back to iUSD. What was the thinking process behind this option?
And second, what happens when a new iAsset is listed given that the new formula will only take into account the market cap and saturation (both low values when a new iAsset is created)? That way, a new iAsset will receive most of the rewards in the beginning.


People use the protocol for many different reasons and strategies. Some just hold a CDP to short an iAsset or build up a leveraged long. Others are short ADA and buy the iAsset on a dex to stake in the stability pool and don’t even own a CDP. I think using a borrowed iAsset from your CDP to provide liquidity on a dex and then staking those LP tokens on the protocol is already risky to begin with. Plus you’re still exposed to impermanent loss. Putting them in the Stability pool would at least be closer to a delta neutral position and typically earn you more ADA+$Indy as well. I would much rather earn my $Indy+ADA and Min all at the Dex level where I can manage all my farming positions in one place. Protocol level LPT staking never really made sense to me because it cost you an opportunity elsewhere. It would definitely suck if you got liquidated because you couldn’t unlock your borrowed iAsset in time but why expose yourself to so many risk factors.


I don’t think there is any need for dividing the rewards between DEXs in 1/3 ratio. They can simply be calculated based total INDY rewards for the epoch for a particular iAsset divided by total liquidity on all 3 DEXs and than distribute them to the DEXs in proportion of their liquidity. And for the part of losing INDY rewards for withdrawing the liquidity before epoch end, DEXs can be asked to change there distribution method for INDY rewards as per existing mechanism on Indigo App. Although I don’t know if DEXs will be able to do this last part.

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Both proposals make a lot of sense. All the iAsset Liquidity providers can get both DEX Farming and INDY Rewards so it’s a win win situation.
2nd pqrt is a bit technical but it makes sense that INDY rewards for stability pools are aligned with actual liquidation and not just the volatility.


So this is the current reward breakdown for epoch 409 that can found in the discord under #dashboard.

Reward for providing iBTC liquidity on Minswap: 304.472131

Reward for providing iBTC liquidity on MuesliSwap: 1.160019

Reward for providing iBTC liquidity on WingRiders: 1093.749084

Reward for providing iETH liquidity on Minswap: 40.973002

Reward for providing iETH liquidity on WingRiders: 1501.827722

Reward for providing iUSD liquidity on Minswap: 99.302406

Reward for providing iUSD liquidity on MuesliSwap: 14.674053

Reward for providing iUSD liquidity on WingRiders: 1738.841596

We arent changing how much indy a pool receives. The formulas are created and WhiteListed Liquidity Pools will continue to earn the same amounts they already would. We are removing the forced choice between staking your LPTs on a dex directly or on the Indigo Protocol itself.

So for example, this is the farming pool on WingRiders for ada/ibtc.

This is the APR if someone wanted to stake their LPTs for ada/ibtc received from WR on Indigo.

Why should someone have to choose where to go, when they can very easily be combined, for a much more attractive APR, which might encourage more people out of the ibtc stability pool and into a liquidity pool.

For reference, the APR on the stability pool. Combining liquidity pool rewards between the dex and indigo would be higher than this. The idea is to tempt more people to put their iassets to work by providing liqudity, thus deeping trading pools, thus helping maintain pegs better.


Both make sense, I’m in favor. :+1:

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I guess what started these conversations was iUSD experiencing a downward depeg. Some argued that an upward depeg is somewhat expected but viewed a downward depeg as unacceptable. I’m perfectly ok with buying a dollar for 95 cents but others worry it will hurt sentiment towards using iUSD as a reliable stable coin. I can see both sides of the debate though and a redemption mechanism may still be in the works for protocol V2 but in my opinion this was sort of a purple swan event.

We are in a super young defi ecosystem with low liquidity and TVL. There was some hype going on over staking rewards for DJED on another defi protocol that convinced a lot of people to create a CDP in Indigo, mint a bunch of iUSD, swap it out for DJED and then use that DJED to farm a particular reward token. This created a huge supply dump on dexs that in my opinion would have easily been absorbed at the slightest discount if we were in a mature defi ecosystem, but theres just not enough people using Cardano defi yet. So as it works with supply and demand if there is an abundance of supply and not enough demand the price decreases.

Some DAO members suggested we simply raise the MCR for iUSD from 120% to 150% to force a spike in demand, but I think that would cause some negative sentiment towards the protocol, at least under that pretense. If we need to raise MCR for other reasons like user confidence or protocol stability thats understandable, but as a bait and switch just doesn’t feel right.

Now this may be what started the conversation over incentives for liquidity providers but a lot of us have long been raising this issue of low liquidity and poor LP incentives, especially for iUSD. Im glad we are having this conversation now because imo staking LPTs at the protocol level should have never been a thing. It over complicates protocol functions/interactions at no additional benefit to the user considering we have excellent dexs that would love to make that deal thrice as sweet. This may not be the ultimate solution for a downward depeg but these changes will help incentivize liquidity providers and improving demand is just a bonus.


If it is a higher APR we want for stability pools we should try to help the indy emission/demand too. Because the rewards are paid in indy, if the price goes down we will have a smaller APR. I see two options to help with this subject:

  1. The healthiest option would be to give more utility for Indy tokens. We can use the AADA token as an example, users can set collateral as AADA or ADA.
  2. Give more rewards for indy in governance. Today we have 9% APR for indy rewards more unstable ADA APR in governance.

I prefer the first option, I’m just not sure how much work we need to give more utility for Indy in the short term.

Thank you to everyone that shared their thoughts in this Temp Check. We will be moving this to the poll phase now!


Hello everyone again. It is a pleasure to see how Indigo is going, every day I feel more confident and secure in investing in this project and I support it even more. As always, language is a barrier and I had a hard time understanding whether to agree or disagree with this proposal. I will give only a short proposal and I hope you will look at it with respect.

My proposal is an alternative to what they are looking for of changing yields. How about we keep the current farm yields but add a smart contract, something similar to Minswap’s Fee Switch? We would have to raise the minimum collateral for all iAssent, such as ETH and BTC. Currently the settlement is 110%, let’s raise that settlement between 3% to 5% max and have that added extra fee from 3% to 5% concentrated in a smart contract. Every 5 days the settled ADAs (ADA epochs) are added to the liquidity pools of 1 or 2 whitelisted DEX max (the DEX would be selected by vote).

Or we can simply each Cardano epoch with that smart contract distribute it only to those who add LP liquidity in Indigo Farming. Those who do farming with their LPs will receive ADA directly. I would prefer it to be added to a liquidity pool as well as in Fee Switch. The smart contract would take 3-5% (community selected) of those ADA and add them to a Liquidity pool like Minswap. That would lower the price of all synthetics every time someone is liquidated, creating new arbitrage opportunities and lowering the impact price.

The collateral minimum would look as follows:

A: ETH and BTC = 113%.
USD = 123%.

B: ETH and BTC = 115%.
USD = 125% B: ETH AND BTC = 115% USD = 125

(Raising that settlement a bit doesn’t hurt anyone, but the gains increase exponentially to those with LPs in farming, or we lower the price of synthetics in LPs).

And well, here we would vote for one of these two options once the above is selected:

A: Concentrate liquidity in the 2 DEX Pools (send it to treasury)
B: Spread the funds in ADA on the Farming within the Indigo protocol.

You should copy and paste this into a new temp check propsal so we can discuss.
At first glane I like the idea.

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Just trying to read this correctly

Is the suggestion

Raising MCR to 113%/123% for ETH,BTC / USD
Liquidation excess of 13% attribute to the following ,
8 % to SP, 2% to INDY, 3% to zap in LP pool

Or distribute the 3% ADA to LP only holders.

Stability pool is what keep the protocol solvent. as iUSD raised to 120% MCR, the liquidations has been few relatively to its TVL.

Currently Stability Pools depend on 2 form of rewards to attract depth and maintain solvency. Liquidations and protocol incentives of which protocol incentives is finite.

A couple of effect to consider, raising MCR reduce propensity to liquidations as seen in iUSD
Concurrently allocating raised MCR elsewhere beside stability pools is likely to reduce the liquidations rewards.


I agree with u fully , if proposal 1 passes , I will be looking to remove my LPT , doesn’t make sense to be expose to impermanent losses while losing all Indy rewards which is allocated to dex

You do not lose indy rewards, that is not true at all.
Users will get the rewards via the dexes farm directly instead and allow for dex individual programs.
User can choose to LP in another dex if they doesn’t like the dex farm implementation.
This proposal is neutral in sense that whether you do it in minswap/wingrider, LP will get the corresponding pro-rated rewards.
Your choice of whether to remove your LPT is entirely up to you


So Liquidity providers will earn less … Please don’t do a Liqiwid protocol where they trick users in the advantages and didn’t put down the disadvantages! i vote this idea down!! It is going to make a lot of people angry

Explain the advantages and disadvantages please

There seems to be misunderstanding that removing staking within the protocol as removing rewards.

This isn’t true, it simply let LP tokens to be staked in their own respective farm in their respective DEXes front end. The same rewards will be delivered via the farms on the DEXes per this proposal.

This would also allow respective DEXes to add their own programs.
This is the original normal procedures of all DEX farms.


I do not really see the need for more incentives to stake iUSD in the SP.
The depeg comes quicker since there is a relative small amount in the pool, true. But even with the increased incentive for the iUSD I would not use the iUSD pool, rather the iBTC pool because everyone is hoping to come out of the bears soon and all assets will gain in price.

Once the market will be more bullish, the demand for iUSD will raise and with it the SP will grow and the depeging will happen less.

With this consideration I do not vote in favour of this proposal.