Proposal: Add support for Indigo iAssets (iUSD, iBTC, iETH) on Liqwid v1

[Dewayne]

Relevant links:
https://twitter.com/Indigo_protocol
https://app.indigoprotocol.io/

Summary
This is a proposal for creating 3 new liquidity markets to support Indigo iUSD stablecoin, iBTC and iETH for lending and borrowing on Liqwid v1.

Project and Token(s) Overview
Indigo is an autonomous synthetics protocol for on-chain price exposure to real-world assets, built on Cardano. iUSD is a decentralized and overcollateralized Cardano native stablecoin powered by Indigo synthetics, iBTC and iETH are Cardano synthetic versions of BTC and ETH from Indigo.

iAssets Market Reasoning
The protocol currently has a total collateral ratio of 209%, iUSD is the largest stablecoin on Cardano by circulating supply and Indigo is the 2nd largest by TVL on Cardano.

Security Considerations
Smart Contract Risk of Indigo iAssets - Indigo smart contracts were built by MLabs and audited by MLabs audit team. The protocol has been live on Cardano mainnet since the end of November 2022.

The full audit report can be found here: https://3518343282-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FnyeBVQAS0X1aGXABzyhK%2Fuploads%2Fn8MhvnBuo4FsyIxrimPt%2F2022-12-09-Indigo-audit-report-rev-1_2.pdf?alt=media&token=b4d0169f-6476-42cd-a38f-a2afe2280c86

Indigo has released the following articles to highlight the stability of iUSD with its Triple-Peg Mechanism and efficient liquidations.

Advancing Stablecoins Part 1: iUSD’s Triple-Peg Architecture Bolsters DeFi...

Advancing Stablecoins Part 2: iUSD’s Efficient Liquidation System Ensuring...

Stablecoin Risk Unlike DJED which has a redemption model executed entirely on-chain, Indigo iAssets currently do not support redemptions for iAsset holders. This poses a serious risk to the Liqwid protocol in the face of unforeseeable future de-peg events and must be properly accounted for with the launch of Liqwid iAsset markets. As such we propose launching the iUSD market with a 0% collateral factor. iUSD holders will be able to supply and earn interest but will be unable to use iUSD as collateral to borrow assets. This means iAssets will pose no risk to the protocol in the event of a future de-peg event.

*This will also apply to iBTC and iETH markets and will only be updated when Indigo deploys a redemption pool to enable iAsset holders to redeem their iAssets in the protocol at par value and has proven redemptions working at scale.

Oracle Risk In addition to the risk outlined above the Indigo team is also running their own centralized price feeds. To our knowledge they have complete control over the oracle price data and are the sole trusted source for updates which is arguably the largest single point of failure for any DeFi protocol and one that must also be addressed by their team before any iAssets can be listed as collateral.

Specifications
The Liqwid Labs developers have completed the technical work to list the iAsset markets including: testing the proposed iUSD stablecoin, iETH and iBTC interest rate models, configuring the iUSD, iBTC and iETH oracle price feeds and confirming other token properties relevant for deploying these new markets.

Suggested iUSD Market Parameters

The proposed iUSD interest rate algorithm parameters and resultant interest rate curve for borrowers and suppliers are as follows:

The proposed iUSD risk parameters are as follows:

Suggested iBTC Market Parameters

The proposed iBTC interest rate algorithm parameters and resultant interest rate curve for suppliers and borrowers are as follows:

The proposed iBTC risk parameters are as follows:

Suggested iETH Market Parameters

The proposed iETH interest rate algorithm parameters and resultant interest rate curve for suppliers and borrowers are as follows:

The proposed iETH risk parameters are as follows:

Do you support this proposal to add support for Indigo iAssets lending and borrowing markets on Liqwid v1?

• Yes
• No

[Falcon]

I agree with these proposed additions and related asset configurations. Not having a basic redemption model is a red flag, but I believe this implementation of the assets prevents and major issues arising that could affect the security of the protocol and/or users experiences.

The addition of these assets as borrowable ones will also increase the usefulness of the Liqwid protocol as a whole and provide more utility.

[Shaneeljiv]

Yup. Better to be conservative with the selected parameters than risk protocol security

[AlexanderTeaH]

These would be a fantastic addition.

[AlexanderTeaH]

Any update on when this would be implemented?

[LapinMalin]

Nice to see iAssets being added.

1. What is the 20% net margin parameter in the table?

2. And why the need for such high utiljump parameters? Since iAssets can be infinitely minted (as opposed to Djed), users can easily provide additional supply as soon as we hit the kink rate.

[Dewayne]

1. 20% Net margin is the same for all markets: ADA, DJED and SHEN also have 20% net margins. As shown in the table this is % of revenue that is distributed to the market reserve for the benefit of suppliers and to the treasury.

2. The utilJump parameter is the exact same as the DJED market, only difference is the kink (iUSD is a riskier asset to list than DJED, it has less collateral backing it and no redemption ability for iUSD if the peg is lost).
   

   

[LapinMalin]

1. Ah, got it, it’s just the sum of IncomeReserve and IncomeDAO.

2. Sure, it’s riskier, but how does increasing the interest rate to 300% help with that?
   I think keeping the maximum interest rate around 80-100% should be sufficient to dissuade users from borrowing above the kink rate, and this would provide less opportunities for whales to manipulate the interest rate to indecently high numbers.

[Dewayne]

It helps because a higher interest rate beyond the kink incentivizes more interest repayments from borrowers and additional supplying to the iUSD market. The current DJED market is already beyond it’s kink point of 75%. I am in favor of moving up the iUSD kink to 65%. Also don’t agree that low kink creates opportunities for whales to manipulate the interest rate to high numbers, as this is the opportunity for new users to earn an outsized yield.

[LapinMalin]

My concern is more on the borrower side.

A small market where interest rates can be easily manipulated/pumped to 200%+ seems rather unsafe for borrowers.

Djed is beyond its kink rate, but only by a couple percents, so the interest didn’t completely skyrocket. It’s high enough to discourage further borrowing, but not so much that it ruins existing borrowers.

I know we want to keep the protocol safe, but this might scare away potential borrowers which we are actually trying to encourage to join!

[LapinMalin]

Would it be possible to add in this proposal a minimum 500LQ/month emissions for the iUSD market?

This would help bootstrap liquidity.

(500LQ/month would give around 30% APR once with 150k ADA liquidity)

[Dewayne]

Your point is already addressed by an increase to 65% kink point

[Dewayne]

There’s already a proposal for updating the LQ emissions with targeted APRs for stablecoins submitted from a community member.

[itzDanny]

i support seeing iAssets on liqwid with this proposal