Thanks! So 9,776 ADA in your example is returned from the collateral of a selected CDP? So for a CDP owner it essentially means her/his ADA collateral gets sold at the current USD/ADA rate? Randomly (i mean, their CDP may be chosen / may be not)? So for CDP owners new redemption mechanism is less capital effective (i.e. they will have to maintain RMR above 200%, more collateral will be required locked)?
2 Likes
Currently around 300 CDPs is below 200% RMR for example.
This represent less than 800k redeemable partially due to the run up in ADA.
It would mean everyone will be bumped up to minimal 200% CR if similar event were to happen.
The peg will then be allowed to depeg beyond 0.97 due to the outsize event.
That is the fundamental design of the RMR that differs from unlimited redemption from other protocols.
A lower peg instinctively reduce the demand for leverage through capital inefficiencies.
Unlimited redemption will allow a whale to effectively takeover all CDPs
This mechanism introduce a semi hardpeg that is slightly more versatile.
Pegging without using fiat back stablecoin isn’t yet solved in the whole space, whether using stableswap or directy as collateral.
RMR isn’t seeking to peg at par. it only seeks to provide the flexility to manage such event.
Remember, there is also a soft peg component.
5 Likes
First and foremost i want to thank the team and technical committee for their hard work and clear presentation of the problems and proposed solutions. Indy is #1 most popular dapp on cardano so clearly it was built right.
I support the general direction of all of the proposals, except the RMR redemption mechanism. I think its important we take a step back and remember who we are here. We are a synthetic derivatives platform not a stablecoin protocol.
As such users should be very clearly advised of the risks of investing in derivatives as opposed to actual underlying asset.
Derivetives will always carry the risk of trading at a premium or a discount to the underlying assets they represent, particularly at times of significant changes to the overall market conditions. RMR or not, discounts and premiums will occur as sentiment changes quickly, which some view as a problem while others view as opportunity.
First - why 200% RMR? I see no justification to this number aside from a vague reference to some eth synthetic protocols usage of something similar. Would like to see justification for such a change include far more risk based analysis.
Second - I am strongly against any outside third party being able to redeem against somebody elses cdp. The person who holds the CDP is taking on all the risk here and this third party is able to profit risk free against somebody elses CDP by sniping cheap iUSD off the markets and redeeming it at the CDP owners expense. I find this completely unethical and i believe #1 it disincentivizes deposits to the stability pools which protect the protocol, and #2 disincentivizes creation of CDPs due to risk of losses as a result of opportunistic market scalpers f’in with your cdps.
#3. One of the primary drivers here seems to be the idea of meeting liqwids ultimatum that iUSD have a redemption feature before it can be considered eligible as collateral. Getting listed as collateral on liqwid will further incentivize leveraged shorting of iUSD and further snowball the downward depeg this proposal is trying to solve in the first place. This could completely backfire when people go hogwild shorting iUSD on liqwid, which is a distinct possibility particularly if its incentivized.
I think this proposal should be removed in its entirety for v2 and addressed separately later down the road and any potential solutions should be based on a thorough fact based risk assessment comparing existing parameters of the protocol to the proposed parameters of the protocol.
Thanks for considering my concerns. Love indigo and love the hard work and efforts of labs and the technical committee to enhance the very best #1 protocol on the entire cardano blockchain.
5 Likes
Hey @k-stack Thanks for the great feedback.
#1 - 200% was suggested based on redeemable relative to the amount that was sold at depeg in early October.
As of current 200% will result in roughly 500k redeemable.
#2 - The redemption itself is just a starting point. There is the reason why the redemption doesn’t happen in 1:1 basis.
The fees involve ensure there isn’t any such opportunity if peg is above the nett redemption rate.
Perhaps some of the redemption fee can be directly accrue to the CDP accounts rather than INDY takers.
I do understand with your overall point on this though.
Further more once the parameters around a hard peg is formed. Additional mechanisms can be introduced to oscillate the peg above a redemption rate.
#3 - Redemption isn’t exactly done for other protocols. But having iUSD being the largest supply while not being the collateral allow for looping with iUSD being the exit. This will happen as long as there is possibility of leveraged yield in other protocol.
2 Likes
Im ok with implementing RMR as I understand the greater need for it. Personally I like the free market approach to iUSD but I get that’s not ideal for mass adoption and user confidence. I do wonder if by the time a redemption mechanism is ready for deployment it may be too little too late as we will have much more competition in the stables space.
As for choosing a direction for addressing liquidity state transition and mitigating a bank run scenario, I really want to hear from the Technical working Group on these different options. What would be the pros and cons of the different options. Could someone model some examples so we can have a better understanding of the options and their effects on the protocol?
Liquidity State Transition
Option 1: Bundled Requests
Would this favor whales who can justify paying the entire fee. During volatile times fractional orders may process quite quickly as many users are offering fractional orders, whereas during none volatile times users offering fractional orders could wait hours or days for their fractional order to process?
Option 2: Fixed Fee Requests
Who would be the “processors” and what sort of incentives will drive their actions.
Option 3: Fee Market
Would this favor whales while the shrimp are more often liquidated because they can’t afford the high fees?
Mitigate Bank Run Scenario Severity
Option 1: Periodic Withdrawals
So SP transaction requests would be allowed to accumulate for a once every 10 minutes transaction that processes all that accumulated all at once?
Option 2: Increased Withdrawal Fees
Would the fees collected be distributed as rewards to SP stakers or added to their staked position?
Option 3: Rate Limited Withdrawals
How long of a wait during volatile times? So transaction requests would not fail but rather just take say 10 minutes to fulfill?
1 Like
My initial reaction to the RMR topic is that it will cause most everyone to raise their MCR above the set RMR threshold in order to avoid being partially liquidated. Once this happens:
- liquidations as we currently know them will never occur, because everyone will be way above 120%,
- leaving INDY stakers with no ada reward incentive,
- SP providers with no ada reward incentive,
- and a subset of users who like to leverage their debt for more ada/cnts/ispos/ etc won’t have as much room to play.
Please tell me if my thinking is off here, or if I’m flat wrong.
3 Likes
With the depegging of iUSD deepening, this proposal should be moved onchain at the earliest.
1 Like
Well it will be emergency measure which will be used to repeg iUSD. So when you increase RMR, it will result in buying pressure on iUSD which, in theory, will result in its repegging. It can always be decreased to below MCR when the objective is achieved. Setting RMR below MCR practically means turning it off.
2 Likes
Hello Indigo Community!
I just wanted to share that we have been listening to your feedback and have made changes to the above proposal based on PWG, TWG, and community voices. We look forward to continuing discussion!
Changelog
Wed, Nov 15th, 2023
- Updated the Liquidity State Transition section with more detail.
- Removed “Mitigate Bank Run Scenario Severity” section in lieu of Liquidity State Transition.
- Added visual diagram to “Redemption Mechanism” section to help readers understand the solution.
5 Likes
I have to admit the LST proposal is a very elegant solution to the contention problem. Well done team.
1 Like
Hello! I’ve noticed your progress and I want to congratulate you. Your proposals seem familiar to me. One of them was to increase the maximum amount that can be borrowed, keeping the MCR at 120%, so that you could borrow from 200% up to 250%. If the ratio fell to 120%, the position would be liquidated, but as long as that limit was not touched, the position would not be liquidated.
Another proposal was to allow the Stability Pool to be added up to a maximum of 25% to 40% of the total debt in each synthetic. This would prevent people from over-indebting themselves to earn INDY and pay off their CDP. The intention was to create competition among pool participants to earn returns and, at the same time, decentralize it. This would also incentivize liquidity in the DEXs.
Today I see that you are proposing something similar to what I suggested in the past. I had imagined this would happen.
The impact price ultimately affected them, as I told you a while ago. Now many iUSD trapped, waiting for DEX POOLS to be stable
Regards.
1 Like
Hi, I also feel the suggested RMR redemption mechanism is not convincing… what it essentially does is it increases the liquidation ratio threshold. Yes, there is a different ‘soft’ liquidation logic in it as well but boiled down it is just an increased liquidation threshold. You assume that with RMR introduced people will not change their behaviour and you allegedly get 500k redeemable but people will adjust their positions to avoid ‘soft’ liquidation and once majority of CDP is above 200% you get back to square one.
The root cause is not addressed. There should be another, probably a pooled approach (linked to DEXes LPools, like treasury bots buying iUSD back to maintain 1:1 peg and then if someone opens/increases CDP, Indigo does not mint new iUSD but ‘sells’ purchased iUSD if available).
I must say it is great that you expose your thought process here for discussion, I think exactly such attitude and ways of doing things is what makes Indigo a great, future-proof protocol. The rest proposals seem reasonable for V2.
1 Like
I’ve thought of four possible solutions:
1- Despite the disconnection in the main DEXs, such as VYFI and MINSWAP, farming for staking could be increased when parity is below 5% per epoch, thus tripling the yield in INDY.
2- Rewards for swaps could be offered (if possible). When iUSD is disconnected and the dollar price is, for example, above 1.05 or below 0.95 (the same 5%), those who stabilize the price in Indy could be rewarded. The minimum transaction would be 2000 ADA with a reward of 5 INDY per day as an example. The team could discuss the amount of INDY. If the user destabilizes the pool, they would not be rewarded with INDY.
3- Dynamic fees could be the definitive solution (it would be the best option, but I don’t know if it’s possible; talk to Minswap and other DEXs). When iUSD is disconnected and the dollar price is, for example, above 1.05 or below 0.95, when a swap is made to send iUSD below 0.95, for each -$0.01 of disconnection an additional 0.02% would be charged in ADA to add liquidity to the pool to whoever SELLS iUSD, but not to whoever buys iUSD. It would be an extra reward to the LPs (ONLY POOLS WITH SYNTHETIC COINS). If iUSD goes above 1.05, the same but it would be charged in iUSD and not in ADA to reward liquidity providers and stabilize the pool. THOSE WHO STABILIZE THE POOL WOULD NEVER BE CHARGED. As long as it is between 1.05 and 0.95, the pool would not charge these interests.
4- To complement the above or as an alternative, fees could be established when requesting a CDP (although I personally do not like the idea, I think it is necessary). This proposal applies when the DEXs are disconnected or it could be left permanently, and a 0.3% of what one borrows or returns would be charged. For example, if I request 1000 iUSD, I pay a 0.3% in ADA and that ADA would be sent to the pools of the 2 or 3 main DEXs to increase the liquidity of ADA and iUSD. In case of returning any synthetic, that 0.3% would be charged and paid to those who have funds in the Stability Pool. EARN IN SYNTHETICS. This would only affect new positions and the amount of synthetics that are going to be requested or returned.
If it is very difficult to reach an agreement with the DEXs for the latter, the 0.3% fees could be sent to those who stabilize the pools regardless of the DEX, only those who make the swap directly in INDY would be rewarded. You would have to add that reward yourselves.
Another idea that derives from the above would be the same thing I mentioned a second ago. If fees accumulate in a PoolSwapStability (I just made it up), it would function as a treasury, where ADA and Synthetics accumulate. Those who make the swap using the Indigo SWAP to stabilize the pool would earn a reward in both assets, both iUSD and ADA, as long as there is a 5% disconnection of the dollar. The reward can be discussed. It could be released by % available in the PoolSwapStability treasury.
Well, these are my solutions. You look at what you do if you improve it or analyze it.
1 Like
I have read this proposal. I shall vote when the time comes !!! 
I propose a fixed fee of 0.15% on the amount that is requested as a loan or is returned. For example, if I request a loan in iUSD (or any other synthetic), I pay a 0.15% in ADA. On the other hand, if I return iUSD, I pay the 0.15% fee in iUSD. This fee would only affect new positions created when requesting a loan and the amount of synthetics to be requested or returned. The fees would be sent to the Stability Pools to increase the interest of the synthetics, reduce the impact price of the DEX and increase the liquidity of the synthetics. In this way, this proposal seeks to maintain the stability of the system in the DEX and provide greater profit and profitability for both the Pools and the INDY token.
This fee would also significantly reduce over-leverage or the limit when requesting a loan to only send it to the Stability Pool, earn in Indy and then sell it, providing an opportunity for those who buy synthetics to earn Indy.
This proposal is better than increasing the MCR or RMR.
When paying in synthetics, the holders of these in the Stability Pool would earn profits in ADA for liquidations and INDY tokens. However, with this proposal, profits would increase each time a loan is requested or returned, as more ADA would be obtained when requesting more synthetics or when returning them. If the synthetics are returned, they would have to be paid with these, becoming an additional reward in the Stability Pool. In case of not having funds in synthetics, debtors would have to search for and acquire more synthetics from the DEX to pay off their debt, which would contribute to the stabilization of the price of the synthetics in the DEX.
In summary:
1-The APY of the Stability Pools would increase.
2-The Stability Pools would pay in ADA for liquidation, for loan request, in Indy and in the synthetic corresponding to the Stability Pool.
3-The Indy token would take the same 2% of all rewards from the Stability Pool, including the synthetics, which would increase its interest and its APY.
4-There would be more interest in having iUSD, iBTC, iETH, which would attract more liquidity and more token purchases, stabilizing the pool.
Important note 1: when paying the fees in synthetics when returning the synthetics, the assets are not being burned, these fees are transferred to the stability pool
Important note 2: The 0.15% fee is, to consider, the community proposes or we put a low but functional percentage. Whether it’s 0.1% or 1%, I put a percentage that would be fair to everyone and that would not affect those who later want to return their synthetics, the price of 0.15% I have considered because it is half of what a SWAP is worth.
Interest is generated in the CDP, leading to increased supply and demand. Assets would appreciate faster as it will always be necessary to have more CDP to pay off the entire debt. In the event of default, ADA would go into liquidation. This would alleviate the impact price on the DEX.
New info:
The problem does not lie in the stable currency.
1-The problem lies in the DEX, as the impact price is very high due to low liquidity in the POOLs.
2-The iUSD requested by the debtors is used in the Stability Pool to earn INDY. My proposal seeks to put a limit to this.
3-The iUSD needs real benefits, in addition to liquidations and INDY tokens.
My proposal would alleviate the price of iUSD, with the following aspects:
1-Those who are extremely leveraged and have already requested their iUSD, or if they return the funds after voting this proposal, will have to pay in iUSD. This would reward the new and old holders of the iUSD asset in the Stability Pool.
2-When withdrawing the funds (artificial from the leveraged) to earn INDY, the rewards from the Stability Pool would also increase, increasing the interest of the synthetics.
3-The value of INDY would rise due to interest in the new rewards, which would also increase the value of staking in the Stability Pool. (This will also increase people’s interest further
Examples:
The system for requesting is the same as the current one, so when you request a loan, it’s exactly the same as when you add collateral and receive synthetics like iUSD. The difference is that a percentage of what you request in iUSD is calculated. In your wallet, you must have 0.15% in ADA of the funds to send them to the Stability Pool.
For example,
if 1 ADA is worth $0.40
if 1 iUSD is worth $1
If you request 1000 iUSD, the protocol will ask you to send the 0.15% fee in ADA to the Stability Pool. In your wallet, you must have an amount of 3.75 ADA to pay the transaction fee. Those who have iUSD in the Stability Pool will share the 3.75 ADA.
In case of returning or burning the iUSD, you will be obliged to have 0.15% of what you burn in iUSD. This will force you to buy more iUSD.
If we consider the same example but with a daily volume of 1,000,000 iUSD returned, if the entire community returns 1,000,000 iUSD in one day, they would have to send 1500 iUSD to the Stability Pool. If they don’t have them, they will have to buy iUSD.
Imagine the daily volume.
Those who have funds in the Stability Pool will have already earned with these two examples, 1500 iUSD and 3.75 ADA (minus the 2% that those who have Staking in Indigo keep). INDY STAKING REWARD: 30iUSD +0.75ADA +xx.x iBTC+ xx.x iETH.
Here’s an additional example: if someone requests 1 iBTC, they pay a 0.15% fee in ADA (they only requested it to earn APY in the Stability Pool). An hour later, the user decides to burn 1 iBTC because they regretted requesting it. In this case, the protocol will ask for an additional 0.15%, which is 0.0015 iBTC, as an iBTC fee. As the user doesn’t have this amount, they have two options: they can return less than 0.9 iBTC and keep the debt, or buy the additional 0.0015 iBTC. This will cause people to stop creating assets and will force those who are leveraged to pay a little more. However, this will not affect anyone and many could benefit, especially the INDY token and the Stability Pools.
The following image is a snapshot of how much iUSD could stabilize with this rate. By creating more interest in having synthetics, people will have more interest in having them. Pushing the price down further
10 Likes
when will we start the development?and how long is it going to take? i thought the team started developing the v2 already? please lets get this rolling we will soon be in a bull market and we need this to be up and running solid
1 Like
The team seems to prefer liquidating their investors before considering the development of my proposal. Currently, they are contemplating raising the MRC to 150% and then reducing it to 130%. This decision appears to be motivated by the fact that iUSD lost its peg for a few days, which caused fear among some investors.
In my judgment, Indigo is making an irresponsible decision. They seem to prefer losing the trust of their investors. In my opinion, I don’t think this will happen, and if they raise the MRC, my proposal would be a bad idea. In addition, liquidation would already take away 50% of anyone’s ADA who requests a loan in Indigo, they would have to pay 0.15% for borrowing and 0.15% for returning it, a total of 0.3%. It’s practically like having more taxes in the protocol, which I consider a very bad idea to implement my proposal with such a high MRC, even at 130% it’s very high.
In summary, my proposal will go to waste, and those who requested a CDP in Indigo will be harshly punished. They took us for a ride. I will soon withdraw from the project and go to Lenfi as soon as it is available. They are not going to play with my money.
3 Likes
Who understands, how thin will be LP in DEXes after MRC increase?
How more volatile and voulnerable iAsset price will be?
If these proposals are based on guesses, wants and believes, I dont think we will get to satisfactory outcome. (Baidenomics, playing freemarket God or Powell syndrome? WTF is it?)
*I think, we need some people in PWG who are educated in economics (Austrian school of economics).
2 Likes
I like most of the v2 upgrade proposals except the RMR. People will just treat RMR as the new MCR then we are back to square one. It might probably mitigate the depeg if the redemption feature was available since day one but at this stage with about 10% depeg, i doubt it will do much. (Has the PWG/anyone run the numbers? Current CDP below 200% vs the ADA amount needed to raise the iUSD value closer to peg in the DEX?)
Protocol might need a Redemption Pool/Treasury that gets filled with ADA either from the Protocol Fees or Users (users gets compensated in putting their ADA into the Redemption Pool ala $Shen but better.) The Redemption Pool/Treasury will then be shown in iUSD’s Collateral Ratio. So if the iUSD’s CR is currently at 200%, with the addition of the Redemption Pool/Treasury it can go up to 400% or whatever % the protocol sets if the incentives are there. There needs to be a cap so as to not dilute rewards for the Users who place their ADA into the Redemption Pool/Treasury.
I know Indigo is a Synthetics protocol but we can provide more to the community by atleast keeping the stablecoin somewhat “stable”. It is the iAsset with a far reaching use case. As for the rest of the iAssets, we can let the gamblers do their bit. 