User Protection, Limits iAssents

[juanCardano]

I can’t propose that’s why I put it here,

Given the circumstances of the bear market and the inexperience of many investors, the leveraged and other things, I propose something to protect all users and also the INDIGO coins.

Currently, the limit to request iAssents and be liquidated is 110%
Liquidity can be maintained, but here are the changes that I suggest.

1-To request iAssents the minimum requirement must be 200% or 250%, the same as Djed recommends, but instead of 400% it would be 200-250% with indigo, increasing the liquidity of Cardano blocking and limiting the creation of iAssents.

2-To withdraw Cardano from the liquidity of the loans, I suggest that it be the same as the above, that Cardano’s collateral remains above 200% or 250%, whatever the community chooses.

Example: if it were with 250% colaeral.
If the person who has debt in iUSD wants to withdraw Cardano from his iUSD collateral and it is at 190%, he has to return iUSD up to more than 250% to withdraw Cardano. Or if, on the contrary, she wants to request more iUSD and it is at 190%, she cannot request iUSD and she has to deposit more Cardano as collateral until she has more than 250%.

if it were with 200% the same but changing 250% for 200%

This would also protect against attacks against iAssents due to lack of liquidity, since it is only withdrawing Cardano having 110% to be liquidated and the whales can attack the price of the coins and the protocol. I see it as a vulnerability and they have to think about that.

Settlements of 110% are not modified in this proposal.

All this to protect the inexperienced users to the leveraged ones.

Those who currently hold their iAssents would upgrade to the change to borrow and withdraw Cardano. that is to say that if they want more iUSD they have to add more Cardano, and if they want to withdraw cardano they have to burn iUSD.

By the way we avoid the creation of irresponsible iAssents

[Jay420.ADA]

First, a preface. I use caps often. I use them to emphasize words, not to indicate emotion, a tone, or to imply anger of any kind. Please don’t take my caps as emotional or attacking. They’re merely for emphasis

There are plenty of strategies being actively employed by traders of all sizes that this would actively work AGAINST. If you’re saying that the first time a specific address uses the protocol, they would need to go through some sort of extra prompt(s) to prove they understand leverage/CDP’s specifically. These sorts of things exist elsewhere and people still rush into things, racing through the “quiz” with guesses. The people who are gonna rush are gonna rush IMO, regardless of the guardrails put in place of which I’d argue Indigo already has numerous.

I myself have successfully minted at Just over 110% CR specifically so I could capitalize on arbitrage scenarios that plenty are taking advantage of, especially with the current upwards depeg pressure that allows a liquidated CDP holder to keep the iASSETS and perhaps sell at a profit especially in outlier periods of volatility. IF that CDP was to go below 110% I WANTED IT to get liquidated as there was more value waiting for liquidation, keeping the iASSETS, and repurchasing the ADA after it dropped further in price. If any type of override is offered for advanced traders, you can bet it will be used by uneducated retail who want to max lever (even if they don’t understand the risk they’re taking due to their own willingness to rush without understanding all the possible outcomes)

I’d argue (and vote) against anything remotely close to this UNLESS it was simply adding some type of message/prompt/sign request for the first time an address uses Indigo to open a CDP where a higher collateralization ratio IS RECCOMMENDED, nor forced. And I’d argue Indigo does this adeptly already with the myriad clear and present all over the protocol

Forcing this as a blanket requirement would stop MANY people including myself from using the protocol, (hurting liquidity and stability both in the process) as it was designed which could have much more catastrophic effects on ALL Indigo users, down to the LP’s who have taken on zero leverage.

If you’re playing with leverage or loans, you should understand these risks or not take part.

There are plenty of aggressive strategies that use the 110% MCR with the full knowledge and sometimes even the INTENTION of getting liquidated. These would not be possible OR profitable with a 200% required MCR. A small bump to 120% I’d be in support of but would want to see clear data on why the protocol wouldn’t be solvent keeping the current 110% MCR. As far as adding an additional warning of some type for new addresses using INDY that they can get liquidated? I’d argue this already exists and that Indigo is one of the protocol that goes out of the way to make sure risks are known+clear within their UX/UI.

If someone’s gonna mint at 110%, they’re gonna do the SAME exact thing at 120, or 150, or 200 or any arbitrary number you pick. Therefore, the most likely outcome of raising it without making it completely crush the other strategies by going 200%+ is simply the SAME exact thing occurring except clustered at the NEW minimum amount. This would arguably be worse for new participants as a position can still certainly be liquidated at 200%. If INDIGO were around for a few months longer, the first CDP’s who opened + didn’t manage would be liquidated with 200% or even 250% minimums with the volatility seen this year anyways.

What’s worse? Losing Double or 2.5x your borrow because you don’t understand the how the protocol works, or losing a few % from liquidation fees + a MCR at 110% because you don’t understand how the protocol works? People are either going to choose to learn how leveraged CDP’s work in crypto, or they aren’t. No amount of overcollateralization will truly help this. It cuts out those experienced in leverage for the (I’d bet extreme minority but admittedly haven’t seen any hard data on this) few who are going to mint at 110% only to end up liquidated hours later.

I’d argue it’s better to learn at 110% MCR than still not have an understanding of INDY and overcollateralize like crazy just to end up liquidated anyways (say you minted ADA mid 2022 at 2$ ea. iUSD and iBTC alike have corrected so deeply even a 400% CR would have been liquidated by now). Most people end up liquidated in my experience because they assume once they collateralize at X %, it stays there. They aren’t taking into account the volatility of both assets in their calculations, rather an assumption that if it can be minted, it’s probably fine. This is of course more pronounced with iBTC + iETH as it’s TWO volatile assets determining your actual collateralization ratio.

But the point is, you can set that minimum ratio as high as you want. Retail who choose not to understand will still mint max and leave it be. Set it too low and what is this really solving beyond cutting out uniquely aggressive strategies active being employed by people using the protocol today who would likely STOP using INDIGO moving forward if these arbitrary major changes were actually implemeneted.

If I’ve misunderstood what you were going for here and you’d like to clarify any of your points I’d be happy to continue the discussion (and I’m interested where other community members stand on this topic but based on existing threads already on the forum it seems pretty clear that anything beyond 120-125% MCR is not only not wanted by many active users, it would be difficult to implement and if its being done a clear reason WHY needs to be presented.

TL;DR I’m all for “forcing” a basic quiz like binance or coinbase do to access their “innovation zones” for new wallets to ensure retail with no leveraged experience at least grasp the very basics before opening positions and testing things out with their entire stacks of ADA. But anything further would push away far more than it would bring in…and I’d argue the community will still mint at minimum and eventually get liq’d anyways, only with more collateral than at present.

As I outlined above, there are plenty of strategies where letting a partial or total liquidation occur is part of the plan.

Hope this helped answer why I would be against this proposal or anything close to it although I believe I see what your core point is here and I’m all for adding something to ensure people opening up their first CDP’s have SOME understanding of what they’re doing beyond “significant financial risks that could involve loss of some or all of your capital” how It’s worded today.

[juanCardano]

My proposal is for both experts and inexperienced. That does not affect you at all, the only thing that changes here is that if you want more iUSD or IBTC, you will need more Cardano.

THE CHANGES WHEN YOU LIQUID THE PROTOCOL THAT DOES NOT CHANGE.

the only thing that changes is the time to order or withdraw.

My proposal has 3 advantages.

1-The more ADA. THE PROTOCOL RECEIVES MORE STAKING FROM CARDANO

2-The liquidity of all CDPs increase as collateral, if the collateral falls to 0 and you do not have enough funds, the protocol can be ATTACKED. By whales and modify the price of the CDP.

3- all expert or inexperienced users do not run the risk of losing their funds so quickly, but the loss continues to exist, it would be when the price changes a 50% or 75% drop compared to the loan. If the user did not add collateral it is liquidated. That’s why 200% or 250%. In short, there would be less liquidated.

If the Price of Cardano goes up x10 THE BEST IS TO WITHDRAW ADA from the collateral, make SWAP. and pay off the debt to withdraw all of Cardano from the loan.

The disadvantage would only be 1:

1-the liquidated ones are now the ones that reward those who add their CDP to maintain that 1:1, without the liquidated ones they are not rewarded, at this moment it is when those who maintain the price are earning the most. That is why this change is not attractive, but it is not that it changes much either. The liquidated will always exist in this proposal, only with less impact.

SOLUTION TO THE ABOVE

Each withdrawal of collateral charges about 20 ADA for every 1000, a fee of 0.15 ADA per EPOCH (1% per year Approximately) may be charged based on the above, for every 1000 ADA of collateral that fee may be charged. That fee would be used to reward Stability Pools. That charge could be made at the end of the CDP contract or deducted from the collateral balance.

Example:
If I only want to have iUSD and I don’t want to lose those 0.15 in ADA, I add my iUSD to Stability Pools and get them back, but those who don’t deposit in Stability Pools increase their ADA staking. If 50% of the CDPs are in Stability Pools, the staking would be 2% APY in ADA. If 5% of the CDP are in Stability Pools, the staking would be 20% ANNUAL, something very attractive both to request more coins and add more collateral and request more CDP.

So you would earn more. Then I give you a drawing so that you understand it.

The more ADA added as collateral, the more you earn for having in Stability Pools if few are using the Stability Pools.

I made another proposal in my proposal.

[juanCardano]

You are not losing with my proposal. In many, record them, the maximum required for a loan is 150% to 175%. Even DAI has that proposal. Mine is high, but it is to maintain the health of the protocol. As you say it is leverage

if you deposit 1000 USD in ADA to have 500 IN iUSD it is 200% collateral
if 50% ADA falls, they liquidate you. It doesn’t change, it was what you wanted to lose.

if you deposit 600 USD in ADA to have 500 IN iUSD it is 120% collateral if it falls 16% ADA they liquidate you much faster.

in both you lent $USD in ADA to request the same amount of iUSD only in one they paid you off faster.

Now if your limit is 1000 ADA to leverage, your limit will be 200% or 250% to request iAsset, it does not change at all, the only thing you lose is that you will not be able to leverage more. And if what you want is to ask for more and more. Do the SWAP for ADA then lend that ADA and ask for more iASSET and repeat.

[juanCardano]

look at the System Collateral Ratio in indigo

It is at 190%, if it reaches 110%. The protocol can be attacked. and if you have ADA you will lose them the same. And the probability of that happening is high. that’s why djed is at 400% or more.

[Jay420.ADA]

I follow what you’re arguing here for sure and I’ve questioned the protocols solvency at 110% but to this point the team claims they’ve calculably ensured it’s okay with current MCR. I understand your idea better now with the clear example and I appreciate the response. I’m interested to hear others thoughts on this. Disclosure: I’m a whale by all definitions. It might marr my opinion on this and I own and understand that. Interested to hear from some of the little guys what they think of this.

[juanCardano]

vote what you think is best
1-I didn’t understand how it hurts you, you just won’t be able to ask for more iAsset.
2-If you want ultra leverage there are other methods.
3-Indigo is an open source smart contract protocol, and I do see the vulnerability or vulnerabilities. I don’t know how to program, but what I see is that many people like Luna and the protocol do not have enough liquidity and few coins in the stability pool. They can decouple from the price when the price aggressively falls below 100% collateral. If you have ADA you will lose them and your iAsset will lose value. I seek to protect the protocol more than the user and the user is a priority for me.

100% of those iAssets are not in the hands of the holders So. For example, I no longer have my iUSD. AND THEY ARE 3000 USD and I have 200% collateral. What I mean is that those who have those Iusds will not be interested in adding to the stabiliti pool. I would not put them

4-Sorry for the capital letters, it was just to highlight something specific, I didn’t mean to offend, and I put them because English is not my native language, so I thought I was more specific.
5- Most of the minimum lending protocols ask you for a collateral of 150%, some like Venus, Sienna, Hay (it is also a stable currency and it failed due to an attack on the protocol, more than 5 million USD was lost in less than 2 months ) etc etc
6-250% is a lot but it is to protect the protocol and the user, 200% is already acceptable and it is good to have a great guarantee. 175% can be a proposal. But in any loan protocol the limit is 150%.

Not even exchanges risk that much, for example BNB has 200% and more!
7- thread term vote find if you don’t think it’s right. I will only change to Djed who has 400%. I will not risk my money for an attacker

[Jay420.ADA]

Again, I appreciate and understand your points. The one thing I wanted to comment on however is protocols like venus, sienna etc are money markets. They are simply borrow/lend protocol. With a variety of highly volatile assets, naturally they need to be over collateralized significantly.

Creating a collateralized debt position (CDP) and minting a synthetic is a completely different process with different attack vectors and advantages. 110% is not “ultra leverage” it’s not even leverage in fact unless you’re looping. You always need to put up MORE collateral than you’re taking out in iAssets if creating the CDP.

The iassets could then go on to be used in money markets or within other borrow /lend protocol if governance took things that way. But there is 100% a very clear difference between a straight borrow/lend money market and minting synths with a CDP. Something like HAY (which admittedly I don’t know a ton about) appears to be more similar to this, where you’re minting an asset based on a CDP. Venus, I can put up a little ADA, a little USDC, a little XRP and borrow a little Bitcoin etc. Those are all real, 100% backed assets. CDP’s are creating synths and it does create an imbalance.

While YOU may not be using your iUSD in the stability pool, I know plenty who are, and just the fact that theres >1 Million iUSD in the stability pool speaks to the fact that plenty are going that route to boost their INDY rewards which have thus far paid out handsomely to protocol users and particularly stability pool depositors.

I believe equating a CDP minting synthetic assets with money markets is a mistake and not how we should be looking at Indigo. The systems are very different and the creation of bad debt in the system would come from very different sorts of attacks than for example what’s been done on venus (an example with venus was a depositor depositing LUNA / UST during the depeg event which was then used to borrow USDC, BTC, ETH etc at max LTV. In this example the protocol was left with bad debt)

In Indigo’s case, the issue is the opposite if anything. There is upwards pressure on peg and on DEX right now, buying iASSETS is closing in on more expensive than a 110% CDP. Pushing that to 200% is just far too extreme for this type of protocol. We need CDP’s in order for liquidity to exist. If people are seeing better returns just market making iAssets on dex it doesn’t do nearly as much for stability as creating new CDP’s (correct me if I’m wrong)

In venus, I can deposit 1000 ADA, borrow 750 ADA for example, deposit that borrowed 750 ADA as collateral, borrow 500 more ADA etc etc etc. THAT is leveraging a position (you can end with >2x looping in venus).

In Indigo, I deposit 1000 ADA, borrow iUSD or iBTC which needs to be traded into ADA in order to “loop” a position. This is healthy for the system and also thickens liquidity on the DEX’s as more and more iUSD/iBTC needs to be traded (encouraging LP’s to earn the trading fees, which encourages more CDP creation etc etc) in order to “loop” and actually leverage the position.

Otherwise, we’re minting synths and a more comparable protocol would be synthetix. They similarly create synthetic assets backed by SNX as collateral. SNX is extremely volatile, low liquidity, far lower market cap, and requires 400% collateralization. However, on SNX, the min collateralization ratio for Ethereum is 150%. A blue chip asset with much deeper liquidity, a larger market cap, and FAR more capital required to induce artificial volatility into, much like ADA itself. SNX market cap is so tiny, a single whale holder could manipulate the SNX price and that’s why the collateralization ratio is so high. When using a blue chip like Ethereum however? only 150% required and No liquidation until 130% per their whitepaper/documentation..

I would argue ADA is extremely similar to ETH in this scenario where a protocol is using CDPs to mint Synthetic assets. This is much more comparable than a direct money market like venus. 150% is reasonable. I still don’t understand where the 200% number came from I guess is my major remaining question.

What makes 200% a suitable number to you and how does that incentivize creation of CDP’s for anyone other than a “green minter” currently (195%+ CR)? The bulk of the positions on Indigo and the bulk of the strategies I’m aware of use a CR lower than 195% and would likely not use the protocol if 200% was a requirement. Again, If I’m missing something feel free to point it out. I just wanted to draw a more accurate comparison (in my opinion) to Indigo by using Synthetix rather than a straight money market which naturally needs to be overcollateralized…if you deposit, you are lending your assets out. Of course you’d want the borrower to be overcollateralized in that situation as it otherwise introduces extremely easy ways to create bad debt in the system.

If I could deposit 1000$ worth of ADA and borrow 1000$ USDC from Venus it would be too easy to dump ADA on venus before a correction or mid correction and just run with the USDC. In Indigo’s case, where are you going to run to? The only place to currently benefit from iUSD in any way is to use it within the indigo ecosystem, benefitting the protocol directly in some way from the creation of EVERY CDP (whether LPing, depositing in stability pool, or simply creating trade volume, it all benefits INDY holders+stakers directly…all revenue/fees come back to the protocol etc. I just see them as entirely different scenarios.

With a money market, you can “take the money and run” so to speak…with Synthetics, where are you running to? Go ahead and try, the system even at 110% is overcollateralized with ADA. 100% backed assets can be used and moved anywhere, iSYNTHS are usable only within the Indigo ecosystem. This is the key difference I’m drawing attention to.

I voted. Thanks for the work on the proposal and the discourse. I hope others chime into the conversation to navigate through this and find a proper MCR.

Edit: By the way juancardano, I just wanted to say you’ve been extremely polite and respectful during this little “debate”. I see and appreciate that. Especially with English not your native language, I wanted to emphasize that when I use caps it isn’t to represent emotion or anger, only emphasis. I really appreciate the time you took to explain your points and you helped me quite a bit in understanding the protocol. I hope we continue to have beneficial discussions moving forward. Thanks mate.

[juanCardano]

Do you work at Indigo?

[DrOctaFunk]

Yea… no thanks. 200% isn’t capital efficient. How is someone suppose to build up a leverage position if they have to provide double the loan to be able to withdraw?

Im ada poor. That measly 75000 ibtc cdp chilling at 119% is mine… it started at 5k. Thanks to being super degen and a bit lucky I have fought off this dumpster fire of December and kept that position alive.
So you are telling me I’d need to deposit 150k ada to be able to withdrawal? That there is no reason for me to leverage myself to the tits and ride as close to the sun as possible because I’ll never be able to actually withdraw that position and make any money?

[Jay420.ADA]

I do not. No affiliation with the project or team in any way. Just interested in the protocol

[juanCardano]

If they don’t know how to make those calculations and understand the image easily, it’s more than clear that the protocol has to change the limits to request and withdraw otherwise all those iASSETs are going to go to 0.

It is one thing to leverage and another thing to create stable currencies.

For high leverage, you can use other protocols than if they are designed for that. Because the more users think so to get “RICH” that same community is unconsciously attacking the protocol and may fail if Cardano aggressively drops something similar to LUNA. Only that nothing will happen to Cardano, only the protocol will die.

In the example image I only put a 20% drop, and Cardano curiously has dropped 21% in a month.

[juanCardano]

[juanCardano]

I already thought of ways to attack Indigo and stay with the ADA. (I DON’T DO IT Because I AM NOT A THIEF OR SCAMMER and because funds are needed to do it)

I’ll tell you between tomorrow and the day after tomorrow, but it’s good that they read it so that they can change and adjust the conditions for MINT iASSET and withdraw ADA.

All I’m telling you is to prevent a catastrophe with indigo, especially now that it’s a small bear market.

IF I AM RIGHT I SHOULD BE REWARDED.

The information can be seen by a whale and if it reads it, it attacks the protocol and attacks you.

Then you will tell me, hey if it should have been like this, you lose my funds.

and I have more proposals to avoid said attack. Indigo can be better than DAI DJED etc etc with the proposals I have

At this time to attack indigo iUSD you need a minimum of 5 million USD. I’m going to write it. But first I pay my collateral.

If I share this it is to prevent and avoid any catastrophe in the protocol.

[juanCardano]

My proposal, as I see it, doesn’t have to be a proposal, it has to be an immediate change in protocol.

I will share the information with the Indigo developers first, if I don’t have a response in a week. I will publish it in this medium.

I will write it tomorrow.

[Jay420.ADA]

Thanks for this. I agree IF you can show the math on what it would take to attack protocol with current parameters. I know you gave a 1million dollar example above, but I believe that assumed a 100k Stability pool which is not the case.

I’m even MORE interested in this for iBTC and iETH which can see further than 20% volatility easily. For example, Eth gains 10% while ADA loses 10% it’s effectively a 20% drop just like your iUSD example and we know they can deviate far further than that (ADA/BTC is down to like 1500 sats from 6300 sats at ADA/BTC ATH)

Thanks for your hard work Juan and I agree it’s a ticking time bomb as it stands now that you’ve broken this down so thoroughly.