iUSD Isolated Collateral in the ADA market

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Summary:

This proposal aims to add support for iUSD as an isolated collateral in the ADA market. Indigo team has taken recent steps to defend the iUSD peg including a governance vote to increase the MCR to 150% with a longer term plan to support redemptions in Indigo v2. Given these actions the Liqwid risk team feels confident launching iUSD as an isolated collateral type.

The current state of Indigo without redemptions relies on CDP owners to repay their CDPs to stabilize price. With the inclusion of iUSD as isolated collateral on Liqwid users seeking to profit from an iUSD depeg now have a profitable strategy.

Profitable loop iUSD CDP owners can use to capitalize on depegs greater than 2.1% (iUSD priced at $0.979 or lower)

  1. Users open CDP and mint iUSD.
  2. User supplies iUSD on Liqwid
  3. User borrows ADA on Liqwid.
  4. User buys iUSD on Minswap at discounted price
  5. User repays iUSD CDP on Indigo using discounted iUSD.
  6. User repays ADA loan on Liqwid with ADA from CDP that’s now unlocked.

This is a profitable strategy for helping defend the iUSD peg so long as the price of iUSD on a DEX is $0.9792 or less with Indigo’s 2% borrowing fee on CDPs (and the Liqwid ADA minInterest borrow cost of 0.08%). This does not include the DEX swap fee.

Risk Parameters

  • maxLTV: 74.91%
  • Liquidation threshold: 75%
  • Liquidation penalty: 15%
    *iUSD will be supported as an isolated collateral in the ADA market.

Do you support this proposal to include iUSD as an isolated collateral in the ADA market?

  • Yes
  • No
0 voters
3 Likes
2

While I understand the point of allowing iUSD as collateral for isolated market on ADA is to incentivise ADA borrowings. It may not be as useful as having other non-stablecoin CNTs to be used as collateral against ADA since they are positively correlated to ADA in terms of pricing.

Stablecoins on the other hand are negatively correlated with ADA. With the seemingly upcoming bull market, shorting against ADA may not be a worthwhile risk.

As I have mentioned previously, I prefer to also have iUSD as collateral against other stablecoins. Since longing iUSD against say DJED could be a good move now that we are expecting iUSD to repeg.

2 Likes