🛠️ Indigo Protocol V2

Indigo Protocol V2 was designed to enhance the stability, efficiency, and economic incentives of the protocol. The upgrade introduces new mechanisms and parameters to better manage the minting, trading, and stability of iAssets.

Key Features of the Upgrade

1. Maintenance Ratio (MR)

The Maintenance Ratio is a new parameter that sets the collateralization threshold required for users to mint additional iAssets or adjust their Collateralized Debt Positions (CDPs). This ratio aims to stabilize the system by limiting excessive debt minting, thus aiding in the maintenance of asset pegs.

2. Redemption Margin Ratio (RMR)

The RMR is a hard peg mechanism that defines the conditions under which iAssets can be redeemed. RMR is currently set to 185% for $iUSD, 150% for $iETH, and $iBTC. The RMR provides an arbitrage opportunity that incentivizes market correction and peg stability.

3. Interest Mechanism

The introduction of an interest rate on all CDPs is a pivotal change in V2. This interest mechanism serves dual purposes: it generates a new revenue stream for the DAO and helps manage the peg of iAssets. By dynamically adjusting interest rates, the protocol can incentivize or disincentivize the minting of a surplus supply of iAssets.

4. Fee Restructure

Indigo Protocol V2 introduced the DAO Treasury unlock and several new fee generation streams to create a more predictable and stable revenue model for INDY Stakers and the DAO. Long term, the DAO’s accrual of ADA from Interest will grant Indigo access to resources for development, incentives, and campaigns.

• Debt Minting Fee: A percentage of the amount minted, deducted during the minting process to generate revenue from increased debt minting activities.

• Redemption Fee: A 2% fee on redemptions, half directed towards the redeemed CDP and half directed to INDY Stakers, enhancing peg stability while providing additional fee generation for INDY Staking.

• Stability Pool Withdrawal Fee: A 0.5% fee on withdrawals from the Stability Pool, redistributed among depositors as a loyalty bonus.

• Liquidation Processing Fee: A 2% fee on liquidated iAssets, replacing the previous collateral fee, ensuring a consistent revenue stream during market downturns.

5. Stability Pool Enhancements

The Stability Pool mechanism is further refined to ensure better management of liquidations and to provide more predictable rewards for stability providers. This includes the introduction of withdrawal fees and the redistribution of liquidation proceeds in a manner that rewards long-term stability pool participants.

Implementation Strategy

While the on-chain upgrade to Indigo Protocol V2 happened quickly, the transition to enable all of the Indigo Protocol V2 features such as interest, or redemption, was gradual and strategic. This approach ensured that the protocol evolved in a balanced and sustainable manner, with community feedback and participation playing a crucial role in the process.