I think a change in the distribution of rewards to SPs is needed.
My proposal is based on the 2 key asset of INDIGO iUSD and INDY and I notice 3 fundamental points to fix:
iBTC and iETH uselessness
1)At the moment we have the SP of iBTC which covers 85% of the total market cap of iBTC while for iETH we are at 87%. This means that iBTC and iETH have no function within the Cardano ecosystem and people simply open CDPs to sell the token they received from rewards, thus increasing the selling pressure on the token lowering the iUSD APY.
2) iUSD is the driving force behind the protocol, the absence of a fiat-backed stablecoin gives us the opportunity to take a large share of the market, we need to increase the rewards for iUSD liquidity providers to increase demand and adoption. Furthermore, the SP currently only covers 60% of the circulating iUSD and this is the most volatile pair.
3) The price of INDY must be supported, this may seem like the classic “pump my bag” but I’ll explain why it is not. The APYs are based on the INDY distribution and right now the distribution favors the reward sellers too much, creating exaggerated selling pressure on the token which is leading to a large decrease in APYs. Most likely the treasury, which is based on INDY don’t forget, will have to start selling (V2) some INDY to be able to pay for the development, creating further selling pressure on the token by decreasing the APY of the SPs
Currently iETH SP receives 7,111INDY 44.2% APY and iBTC 7,144INDY 53% APY and iUSD 14,505INDY 36.9% APY. My proposal is to decrease the rewards of iETH and iBTC SP by 60% for a total of 8,533INDY to be distributed to INDY staking.
iBTC and iETH APYs will drop to around 20%, many people will close their CDP and provide liquidity to the iUSD SP helping protect our key asset. Furthermore, those who abandon the iETH and iBTC pools will increase the APY of those who still remain deposited, creating a sort of internal balance by bringing the APY back to a higher level. The second driving factor is the price support of INDY, let us never forget that APY and treasury are all based on the value of INDY. The decrease in the rewards for the iBTC and iETH SPs will greatly decrease the selling pressure while the distribution to INDY stakers will increase the demand for the INDY token, furthermore INDY stakers by nature are inclined to hold rather than sell. Decreasing selling pressure and increasing apy for staking will have a positive effect on the value of the token which, in turn, will have a positive effect on the APY percentage of SPs.
In all of this I see a huge advantage for the INDY stakers who are the core of the protocol and I see high support for iUSD both on the market cap side and on the hedging side of the iUSD SP.
The only ones to “lose” would be the liquidity providers in the iBTC and iETH pools who, given the low adoption of these assets, are of no use at the moment, they participate in the protocol only to sell the rewards.
However, let’s not forget that with a decrease in the rewards for their SPs, the price of the token increases and there will be an internal rebalancing of the pools, so in reality their APYs do not drop much. (I expect them to remain around 30%)
In my opinion it is also low. Some would change SP by increasing the APY for those who remain while the increase in the price of the token would bring the apy back to the current level but above all it would increase it to iUSD
In my opinion reducing rewards for iETH, iBTC would not increase value for Indy.
The only way Indy would gain value is through iAssets utility, which right now none of them have it.
Better to find ways how you can implement iUSD, be accepted as collateral (150% ratio) with a fixed fee (not 2%)to close CDP to mint (open short CDP position) iBTC, iETH on the protocol.
By doing that will decrease rewards for iUSD SP therefore will reduce selling pressure of Indy.
All liquidations that will occur for iUSD CDP,s you can use it to reward Indy stakers (demand will increase for Indy).
iUSD will straighten even more because will get locked in CDP’s.
A portion of iUSD liquidations and the fees collected from closed CDP’s can also go to treasury to further secure the protocol.
Another way is to implement iBTC, iETH as collateral to mint iUSD or to be accepted as collateral on other protocols like Liqwid.
Utility for iAssets is the key.
I feel like this is a better approach.
What happens when we add more iassets and APRs across all SPs decreases further since the reward pie is being sliced up even more?
How about instead of decreasing and “guessing” what numbers could or couldn’t be, we put a targeted % on iusd for indy emissions? For instance: iusd could always receive 25% of indy emissions to SPs regardless of how many iassets are created now or in the future.
I am not a fan of this simply for the fact you call ibtc and ieth useless when they are in fact far from being useless.
FWIW I believe this is the right path forward. The people who are staking INDY are the ones who are keeping the price up and the APY healthy, so they should have a greater incentive. Whilst we don’t have data on what the LP/SP people are doing with their rewards (although I’m sure the team could track it), my guess is that a lot are just farming INDY and then dumping to ADA which creates a lot of selling pressure. If that is the case, what is the incentive to hold a token which continuously goes down?
DrOctaFunk makes a good point on future iassets, but that is a little ‘if/but/maybe’ as we don’t have much insight into timelines for future iassets to be added, due to various regulatory/technological roadblocks etc.
I think the author should not have used the terminology ‘uselessness’ when referring to iBTC/iETH as synthetics are the whole point of the protocol, but I don’t think that gets in the way of the overarching discussion around managing the rewards differently.
The INDY stakers are the core of the protocol, without them holding the price up, I doubt many people would be interested at this point in time due to the emission schedule. They need to be rewarded more or the selling pressure will become too great and be hard to maintain users. A small redistribution to stakers would help manage some of the selling pressure and provide greater incentive for people to get involved in the governance side of things. Which is what you want in a DAO.
Whilst it is somewhat taboo to discuss the INDY token price, the hard fact is that we are operating in a money market driven by speculation - so anyone who says the price of the INDY token doesn’t matter is either lying to themselves/others or is completely out of touch with reality.
I believe that more iAssets would create an even distribution of rewards and decrease selling pressure, however this is not the case for us as we only have 3 iAssets and lack of liquidity in Cardano. I like the idea of keeping the 25% fixed in iUSD but at the same time I would implement a system in which above a certain coverage threshold we remove percentages of rewards that would go to waste, e.g.:
and if it was that:
-SP covers 70% of MC -5% of rewards
-SP covers 75% of MC -10% of rewards
-SP covers 80% of MC -20%of rewards
-SP covers 85% of MC -30% of rewards
In my opinion, the current emissions must refer to the current market, the one that can now work to push the protocol, in 3 months it may be different, so the emissions must be dynamic
I agree with everything you wrote. My term “useless” refers to 2 things:
To the rewards of the iBTC and iETH SPs as they are too covered and it is clear that it is only speculation to sell
At the moment due to the bear market there is no demand for iETH and iBTC outside the protocol but I’m sure things change in the bull market But at the moment we have to worry about the current situation
Thank you for the clarification! I understand English isn’t your first language, it’s just that this word (useless) is very strong and in this context, it is like calling someone’s baby ugly, which is not what you want to do when presenting a proposal to the community/team.
I think there is a better/more politically correct way of discussing the current uptake in the synthetic assets which largely revolves around liquidity given where we are in the market cycle, the growth of Cardano, and how young the Indigo protocol mainnet is etc.
I do agree with the overall sentiment of your proposal, just wanted to clarify that I don’t believe that they are useless and or entirely the team’s fault for the lack of adoption. We have to start somewhere and micro-tweeks/iterations are standard practice in every business.
With everything all said and done, I stand by everything you have said here and my prior comments, the rewards do need rearranging. The team shouldn’t get their back up about this proposal either as the whole point of a DAO is having decentralized decision making via community input.
It would be great to see some more of the PWG/Labs comment on this too. Given they are the experts and we are just random people on the internet, it would be good to hear the good/bad/ugly of this proposal to keep things objective.
Emissions will always be sold regardless of which pool recieves them. I don’t think we can necessarily say that boosting iusd rewards will reduce selling pressure.
I appreciate the desire to protect iusd but we need to be more than a one trick pony IMHO.
I agree more utility needs to be developed. I imagine new iassets and collateral sources will help with some of this. Right now though we are in the midst of a liquidity crunch. This unfortunately adds additional risks for new iassets and Indy.
You have probably noticed other protocols have reduced their total emissions rates and they are still seeing price declines.
I am not opposed to looking at this closer but even if we reduce all emissions (ibtc/ieth/iusd) we cannot assume price appreciation.
This is largely due to the macro environment we are currently in. Reduced liquidity to crypto/ risk assets from central bank hiking/ QT/ and seasonality is brutal right now.
I appreciate you bringing this up and looking forward to reading everyone’s ideas about this.
Would like to add to this a study to increase of INDY rewards for Liquidity Providers in ADA/INDY main pool in Minswap this could help price stability as more liquidity enters the pool, the price will have less impact from high sellers and buyers or volatile.