Temp Check to increase iUSD MCR to 120%

Because of Indigo’s and Cardano’s efficiency, iUSD was able to launch with a MCR of 110% to boost an early liquidity base as needed. This MCR is well supported by the Protocol dynamics and helped bootstrap liquidity by minimizing the borrowing cost. At present, iUSD Stability Pool saturation is roughly 57% and the iUSD price peg has been relatively stable to date with arbitrageurs helping maintain the peg.

The Indigo Labs team now proposes to increase the iUSD MCR to 120%. This proposal is based on feedback received over the last month that a higher MCR would provide for even greater Protocol stability and iUSD peg stability, and would lessen attack vectors (by making the cost of iUSD higher). We also expect that a 120% MCR will generate greater TVL for the Protocol by addressing these issues.

We are mindful that changing the MCR of an iAsset will require some users to either increase collateral in their positions or close their position; we propose to post notice of the change on social media and to give those users 5 days after the Proposal is passed to adjust or close their position. The Indigo Protocol was designed to be able to adjust MCRs to meet market dynamics, and we believe that the potential benefits to Protocol stability, security, and TVL support this adjustment.


It is good initiative and would also mean more profits for stability pool stakers. But it can theoretically create an upward depeg scenario of 20 %. I still believe it is a good decision.

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This is only iusd, correct?
What about ibtc?

Also, is it possible to maybe “grand father” in already opened cdps that have already been opened under 120%?
Since the cdp is connected to a stake address, maybe there is a way to allow to remain open even under new MCR conditions?


The system will not allow this function, which is why there would be an additional 5day period prior to executing on chain for users to adjust their positions if the proposal is eventually passed. As of writing this, there is only (1) iUSD position under 120% MCR and (17) total under 130%. I mention these under 130% as it would be logical to assume other users will also adjust their positions safely above the liquidation threshold of new 120% MCR if it were passed.

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This is just a proposal related to iUSD for now

Idk boss… to me… this is what is called a precedent.
Even if its just 1 cdp that faces liquidation from this… they took on the risk. Created the cdp, minted the iasset, and got it into circulation terms with conditions set in place at launch.
So outside looking in, why would anyone ever take on that risk again(opening a cdp) if the “rules to the game can change after the game has started”?

I understand why it needs to be done, but this proposal is for only 120%. Will next month be for 130%? Month after that 140%? So on and so forth.


Hi there I agree with droctafunk…

We shouldn’t change rules like that,

By the way,

I will just quote what defiroose said and leave that here :

« Stability Pools are designed to be profitable most of the time at the cost of being exposed to low-risk of losing funds. The edge cases you’re describing are examples of this risk playing out. As in, most of the time a Stability Pool staker should be profitable, and sometimes they’ll lose money. This is by design and we don’t need to ensure that Stability Pool stakers will always make money. It should be well known that Stability Pool stakers are exposed to risk (albeit small).

If these edge case risks become more probable, or even after they’ve been exploited, then I would consider increasing the MCR. By increasing the MCR, profit for Stability Pool stakers is increased, affording them the ability to consume bad debt.

If people leave the Stability Pool, then INDY yield is increased automatically. This of course may create sell pressure on INDY, but it still serves as an incentive to bring liquidity back into the Stability Pool. Ultimately, long term stability of the system is what will lead to buying pressure on INDY.

Confidence in the system is predominantly dictated by iAssets maintaining their pegs. Even in the case of bad debt entering the system, downwards depegging is prevented. As iAsset prices fall, it further incentives CDP owners to close their positions due to increased profit. It further incentives new users to enter the Stability Pool to take on the bad debt. This causes buying pressure on the iAsset to bring it back to its peg.

Increasing MCR at this stage of the protocol’s life isn’t justifiable. What is being proposed here is to increase a known exposure to depeg upwards, and to decrease risk of Stability Pool stakers and possibly minimizing a risk of a recoverable downwards depeg. Therefore, we’d sacrifice trust and longevity in the system by purposefully depegging iUSD for practically no benefit.»


I vaguely remember those conversations and feedback where members were expressing doubt that 110% MCR would be adequate for all possible market conditions or black swan events. At that time I remember the Lab assuring the members that 110% was more than adequate because of how the protocol was designed. So what has changed in the last 2 weeks that the Lab is now changing their tune on MCR? How will increasing MCR increase TVL? Can we get some figures to describe how 120% MCR would help maintain peg. It seems to me that current MCR @110% has led to an upward depeg hovering near 10% so wouldn’t 120% MCR exacerbate this upward depeg even more. I’m not against increasing the MCR by any means. I would just like to fully understand why it is necessary and what has changed.


I like how this topic is going.
Considerations to take note would be having a 20% collateral liquidation might be too punitive to borrowers all things considered.

How would the 20% collateral be distributed? if the borrower is able to claim back 10% depending on the oracle price of liquidation I think its fine and less punitive while protecting iAssets holders.

Further more I would also suggest a backup solution where the excess 10% is further use to conduct market purchase of the iAsset in event where stability pool has insufficient iAssets to cover the liquidation. thereby reducing the potential for bad debt.


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.


Hi there, thank you for your reply, but it seems like you forgot to mention, at the time we’re talking about that, ADA’s price increased by 10%, so the price of iusd went down by x%, and same goes for the debt,
which means we’re still not out of the current bear market so we re still not safe from being liquidated,

What about those of invested into iAsset, and have barely enough ada to keep their CDP alive at 120% ?

Well said EC and thanks for clarifying the Labs reasoning behind this Temp Check. If the goal is to encourage new users to participate, increase confidence and protocol resilience then that’s good enough for me. Long winded is great. Throw in some numbers and charts and I’m in nerd heaven.

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If you still have the iAsset you can burn a small amount to get above 120%. Also check out AADA. You can barrow all sorts of assets in exchange for various types of collateral.

Its whatever at this point.
We keep bringing it up so clearly its something that should be done. So lets just do it and get it over with

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To be fair, only being 10%-15% over collateralized while using cryptocurrencies (especially an asset as volatile as ADA), is a terrible idea, and using the argument that people would have to add collateral to their positions, to oppose the MCR increase is nonsensical.

This is not a fair argument for shutting down the proposal since Indigo should support healthy loan-taking anyways. People who are right at the cusp of these thresholds are going to have to add collateral anyways, so let’s focus on making the overall protocol safer.


110% is certainly not adequate for a defi environment with as low liquidity as cardano. Perhaps these metrics are viable on Ethereum, but that is because the liquidity on eth dwarfs that on Cardano. In black swan events, and when people are getting liquidated/others are paying back debt-- ADA will continue to fall in price harder on chain, while the price of iUSD is going to increase at the same rate; making it harder for people to pay their loans back creating a dangerous spiral. We need to increase the MCR to create more of a buffer to protect this protocol from incurring any bad debt. I see Indigo as the biggest protocol on Cardano going forward, but with great power comes great responsibility. Let’s make the parameters as safe as possible so we can attract as much TVL in the future as possible without systems breaking. Take a look at MakerDAO, they have much much more TVL than cardano defi, but their systems have liquidations at 160%+ MCR. It’s important to factor all these into this decision and mimic the best protocols that have succeeded the longest.


I definitely agree with this. There isn’t sufficient liquidity in the market for stability pool stakers to efficiently liquidate troves in the case of a market downturn where ADA dumps. Price impact for selling ADA would be too high to effectively liquidate on DEXes. If Stability Pool stakers leave the pool, and mass liquidations happen, the protocol would be left with bad debt. Low MCR>SP stakers leave>low liquidity>Market downturn>nobody liquidating the collateral>bad debt>rip Indigo


Right. Just look at all the successful borrow/lend platforms on Ethereum; the ones that have truly been stress tested and survived have the safest parameters that factor in liquidty levels for liquidations. There is no reason to have such a low buffer in Cardano defi– markets change so rapidly and these systems can break so easily.


In my view, the primary reason to increase the MCR to 120% is to safeguard against the possibility of bad debt. By requiring a higher level of collateralization, we can reduce the risk of losses in the event of liquidations or market volatility. While it is true that increasing the MCR may present some short-term challenges for borrowers and INDY holders, the long-term benefits of a more secure and stable protocol are well worth it.