The Indigo Protocol, in its current structure, uses a mechanism that allows Liquidity Provider Tokens (LPTs) from Decentralized Exchanges (DEXs) to be staked and earn INDY rewards. Initially, this was intended to incentivize the provision of greater iAsset liquidity on DEXs.
The existing design (prior to proposal #19) required users to make a choice between staking their LPTs with the Protocol or with a DEX, a dilemma that potentially deprives users of lucrative triple yield farming opportunities. This issue was resolved by proposal #19, by redirecting INDY rewards from LPT stakers within the Protocol to iAsset liquidity providers on DEXs.
Although this initiative led to an increase in Total Value Locked (TVL) on DEXs, it also unintentionally created a lag in rewards. Under this structure, users are rewarded based on data from the previous epoch, resulting in a time lag that could potentially be exploited by bad actors with sufficient LP. This unintended consequence underscores the need for a more efficient and secure rewards structure.
To address these issues, we propose a change in the rewards structure based on a more predictable and transparent schedule. The new mechanism will reward participants on a monthly basis, with rewards calculated as a percentage of each whitelisted LP farm’s contribution.
For example, consider the rewards for August (Epochs 428-433, totaling 28,770 INDY). These could be distributed among the LP farms according to the following percentages:
- iBTC liquidity on Minswap: 9%
- iETH liquidity on Minswap: 2%
- iUSD liquidity on Minswap: 35%
- iBTC liquidity on WingRiders: 18%
- iETH liquidity on WingRiders: 28%
- iUSD liquidity on WingRiders: 8%
If this proposal passes before August 3rd, the initial distribution based on this method would start Aug 8th, 21:45 UTC. The distribution percentages will be the average of all the July dailies. The initial percentages will be announced in the Indigo Discord for visibility to the community.
LP rewards will be announced mid-month for the following month, whether changes to emissions were made or not. For example, August 15th 2023 the LP rewards will be finalized and announced for the distribution period of Sep 2nd, 21:45 UTC to Oct 2nd, 21:44 UTC.
Our proposal aims to give the DAO members greater control over rewards allocation, reducing reliance on past TVL and volume metrics that are difficult to justify algorithmically. The new system is less susceptible to manipulation, more predictable for participants, and better suited to fulfill our original goal of incentivizing increased iAsset liquidity on DEXs. Changes to the LP reward distribution will take place through text governance proposals. These proposals should outline the new intended percentage breakdown of LP rewards.
It also makes it possible for the community to concentrate liquidity to selected dexes instead of the current design which rewards split liquidity equally as concentrated liquidity.
Another advantage is that dex pools can be pre-selected in a targeted way prior to the pool having any liquidity. E.g. SundaeSwap doesn’t have an iETH LP at the moment. In cases like this a proposal could be crafted to incentivize the creation of a new iETH pool (one with a specified trading fee), by allocating 1% of LP rewards to it.
We believe that this proposal will help simplify the LP reward process and give more control to the DAO on deciding where to apply liquidity. We ask for everyone’s support and look forward to answering any questions.