Thanks to everyone who has shared their thoughts here thus far. Some good questions have of course been raised, so we wanted to expand a bit on the Labs Team’s thinking with this Temp Check.
On the concern with raising the iUSD MCR after only 5 weeks, our view is that the Protocol was designed to have many MCR adjustments over time to allow each iAsset’s MCR to be managed individually in light of market and/or community conditions. As the iAsset suite is expanded, there will be different iAsset “types” that will require different MCR’s and their markets may not correlate. The Protocol’s rules allow for parameter updates on other aspects of the Protocol as well, and this is by design. It’s that adjustability that’s key to making Indigo truly dynamic and decentralized as we do not want our decisions in the development phase to restrict where the Indigo DAO takes the Protocol. In our view this sort of Temp Check flows from the Indigo Paper; the MCR-setting rules are not being changed, but more accurately they’re being followed as designed. And yes, the MCR for any iAsset could be changed at any time in the future and iUSD’s MCR may change again if the DAO votes for it, whether that’s a reduction of the MRC’s based on the market dynamics or a further increase - it can go either way. The community will all have to monitor the activity with the Protocol and analyze things as we get more data to go off of. We’re fortunate now to be able to rely on real world data as opposed to development stage modeling and forecasting using other chains’ activity.
It’s important to note that the Protocol has been functioning as designed since launch and this Temp Check does not at all mean that the launch MCR has any systemic issues, even though it’s the third Temp Check of the same topic since launch. The 110% MCR for iUSD is well supported structurally, and we opted for it at launch in part due to concern with possible upside depeg due to projected low-liquidity and high demand immediately post-launch. We did see a very immediate depeg that was a bit dramatic, but it has since remained mostly stable aside from a few % points here and there. Overall, the Protocol has managed quite well so the initial depeg concern has receded with more iUSD liquidity moving to DEXs out from the Stability Pool, which now sits at roughly 52% saturation. It’s worth noting that any depeg scenario up/down is still at play and possible and this is not to say it won’t happen.
In the end, this Temp Check is driven by two main considerations – first, concern from the community and non-users that the current MCR creates too great of an economic attack surface, and second, feedback that users would be more willing to add liquidity to the Protocol with a more conservative iUSD MCR. It would seem that users and non-users alike have been exhausted by the 2022 meltdowns and understandably want to use their capital where there’s a sense of not only capital efficiency, which Indigo certainly offers, but also some sense of security that the Protocol they are supporting is also designed as stable as can be.
We hope and believe that a higher iUSD MCR would bring greater TVL, and that higher TVL would help grow and stabilize all aspects of the Protocol for the long term. With greater TVL, the Protocol will also bring more awareness of Cardano DeFi to those outside it, as well as organic growth from within.
Taking these points into consideration, we feel that now is the optimal time while the system is not overloaded to make this initial MCR change.
And rest assured that we too are concerned with making sure no one gets liquidated unexpectedly from any MCR change. That is why we have proposed, should this Temp Check proceed to a passed on-chain vote, that users will get notice of the pending change and a sufficient number of days to manage their positions accordingly. At the time of writing this there are zero users with an iUSD CDP and MCR under 120% and so we feel that the risk of unintended liquidations can be managed with proper communications - something you all would have come to expect from us by now.
I know this post is a bit long winded, but felt it was fair given the comments to expand on our thinking with you all. We appreciate you all and the very obvious fact that this community truly cares about Indigo and its future.