User Protection, Limits iAsset 200% or 250%

[juanCardano]

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 iAsset and be liquidated is 110%
Liquidity can be maintained, but here are the changes that I suggest.

1-To request iAsset 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 iAsset.

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 iAsset 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 iAsset 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.

[jrm512]

I guess I don’t understand how this protects anybody besides giving a larger runway before potential liquidation. what sort of attack do you think this protects users from and how likely/possible do you beleive that is?

[solitude]

that would be too punitive for a cdp imo.

but de-risking measures is plausible in terms of maintenance margin vs liquidation margin ( CR)
which can be set as no minting for position below 135% /150%
to mint iAsset one will then be required to top up above maintenance margin.
given the average CR right now at 200% it shouldn’t impact many people yet sufficiently derisk of any large downside.
eg right now if someone mint > stability pool and get liquidated there isn’t sufficient iAsset to liquidate the position properly if the user just hold it as stable or trying to squeeze iAssets.

[Jay420.ADA]

This was basically what I took away from this discussion as well. I’m fine with a “no mint” below 135 or even 150% CR, but pushing much further than that could really hurt the future + even current functionality of the protocol. At this point, many are using it with low or “looped” MCR’s. I’ve noticed that with particularly large positions particularly with iBTC which has an even smaller stability pool in ADA terms than iUSD does. Incntivizing liquidity provision instead of stability pool deposits only was a good start to slow this down but there needs to be more uses of iAssets other than stability pool deposits and the only way to do that while still benefitting Indigo would be incentivizing the early LP’s.

Locked rewards, an unvest period, increasing incentives over time for longer term LP’s etc could all be used as alternative ways to push liquidity provision over stability pool deposit (which has its own risks, that are significant. I think a lot of people defaulting to deposit into stability pool are likely not aware of these major risks + if they were educated they would likely NOT be depositing 100% of their positions anyways into the stab pools.

[juanCardano]

I think that many do not understand my proposal, so here I leave a more graphic scheme so that you understand it better, this is for the health of the protocol. If you want ultra leverage you can use another DEFI protocol, but Indigo is not designed for that.

[Jay420.ADA]

hey would you be able to or want to help me calculate the amount of capital it WOULD take to attack the protocol? I think it would be wise to help us determine the “perfect number” rather than the arbitrary 200%. I think you expressed yourself very well as a non native speaker and while I don’t agree on all points I DO recognize than an exploit doesn’t require a “hack”, rather a simple attack vector.

While you’ve claimed the protocol can be attacked, I think calculating the amount of capital it would take is critical to determine an appropriate MCR

[solitude]

I don’t see how the attacker benefit manipulating price of iusd. one can dump iusd to 0 today and it will still be fine as long as oracle isn’t manipulated.

an attack will involve manipulating oracle price for profit
if it is a hack then it will be minting more iAssets

in this case I would say trying to manipulate ada price is pretty tough. if it does then we all will be picking up cheap ada.

One way I would think of would be what happen if a whale borrow iusd and forget about it.
subsequently a fierce dump happen. whale ADA get liquidated. stability pool runs dry.
this would instead turn into a squeeze on iAsset for ppl to cover debt and prevent liquidation but people will start minting and selling on dex as well.
this may leave stability pool with no iusd to do any liquidation and thus bad debt.

[JamesCarther]

I share the view of @solitude . If somebody pushes iUSD to 0 on a DEX, I will be happy to buy it all. I get the concern with CR but I would only consider 110-130% range. I do not want to be limited in my risk-taking. Right now we should promote minting iAssets. This is exactly what 110% CR allows. If your CDP is at 111% and 20% dump comes, you are actually even gaining on the liquidation. Such dumps are not that frequent so SPs should not suffer that terribly and they should know the risks. If we want to limit the success of Indigo just because some user might be inexperienced, that would be shame IMHO. These users should read the WP, educate themselves first and go try on testnet. Then they might come with real money. This protection thing sounds like what banks are doing not allowing you to work with certain products because they claim they are too risky and they want to protect you. Leverage trading is not for everybody and that should be acknowledged and the Indigo team was mentioning it often I think.

[solitude]

Any limits is out to protect and defend the protocol solvency and not limiting users.

In a example on 19 may 2021.
amplitude of the crash is 50% in a single day.

Now consider if the account holder of 2m iUSD
And stability pool of 1.5m

If he withdraw 10.2m ada and left with 8.8m and price hit liquidation at 0.25
This will result in a shortfall of 500k iUSD
Protocol enter into bad debt that at point of oracle if the account is liquidated at start of the drop. eg 0.25 cents.
1.5m stability pool at 0.25 will liquidate 6.6m leaving 2.2m ADA frozen + 500k remaining bad debt

if price continue to falls and end up with 0.125 cents oracle price
sending anymore iUSD into the stability pool would actually be negative value because this 500k will be use to liquidate 2.2m ada worth 275k only.

Given there is
1)Actual day that 50% drop happen in past 2 years.
2) Actual position that can result in bad debt currently (2m)
3) Actual lack of stability pool reserves to cover one single account bad debt.
4) actual incentive during extreme volatile period to withdraw from stability pool
5) actual incentive to front run oracle pricing by increase minting of iasset during volatile period

This is to defend indigo in its market operations even on days of extreme volatility.
protocol can survive for years but it only take a day to get totally destroyed.

[Jay420.ADA]

nicely stated. thanks

[Jay420.ADA]

agreed 100% ty for clear example w the maths

[CodyCodes]

The reason your CDP was not liquidated was because the preview network did not have the Liquidation Bot actively running as we were doing some manual testing. I apologize that it overlapped with your test, we will start the liquidation bot on the preview network and keep it running so that you are able to test.

In the case that you are pursuing, where the Stability Pool does not have enough iAsset to liquidation your WHOLE position, a partial liquidation takes place where the Stability Pool is emptied to pay off as much debt as possible.

An “attack” like this can occur in any system with not enough liquidity. However, the beautiful thing is that the community can band together by providing more liquidity to the Stability Pool until that position is fully liquidated. I’m happy to answer any question with respect to that if you’d like.

[solitude]

In order to not result in over limitations I would suggest that such limit to be at 150% this should provide sufficient protection with 120% MCR.
Do we have to temp check for different percentage suggestion?

[juanCardano]

For me, 150% is super perfect, it would still be good if it was voted for by the community, that it be multiple voting, a serious Mint option and withdraw with ADA collateral from:

1-110% (leave it as is)
2-150%
3-175%
4-200% (For me the healthiest and most responsible)
5-225%
6.250% (Super Collateral)

The most voted would be the option to which all users would adapt. This is so that the community does not seek to self-liquidate and irresponsibly create synthetic tokens, and that the protocol is healthy.

We will leave the leverage to other Cardano protocols, even Indigo can include it to create a lending protocol where the synthetics are deposited and rented and have rewards without having to create new synthetics, that leverage can be 1000 if they want,

(later I pass the proposal just like the idea is, but let’s solve this first)

This for me as an investor would be to invest in this protocol and create new synthetics.

[solitude]

Would certainly vote 2 for capital efficiency and yet increased safety margin. we can adjust as we go along.

I have also create a separate thread incase it is needed to pass that through.

There are also other topics such as malicious unforeseen minting and systemic accounts that is larger than stability pool which won’t be solve by this parameter alone. but 1 step at a time.

[thr33]

All of this person’s suggestions seem like they’re out to limit the growth of Indigo. Who are you? I would vote no.

[INDY1]

I dont like this idea. no way

[mannymacfly]

Indigo Protocol Proposal Temp Check Increasing ALL iAsset MCR to 250% is Nuts!

[defiroose]

Juan decided to leave the Indigo community so I don’t think this temp check will make much further progress

[mannymacfly]

Details on why he left the community?