π¦σ ₯ Interest
Overview π
The interest mechanism in Indigo Protocol V2 is designed to enhance the stability of iAssets and provide a consistent revenue stream for the DAO. By applying interest rates to Collateralized Debt Positions (CDPs), the protocol encourages responsible borrowing, thereby maintaining the overall health of the system.
How Interest is Applied βοΈ
Interest rates in Indigo Protocol V2 are dynamic and can be adjusted by the DAO to respond to market conditions. Interest begins to accrue on all active CDPs from the moment they are created. The interest rate is applied to the debt amount, increasing the total amount owed over time.
Benefits of the Interest Mechanism π
Stability Management: By adjusting the interest rates, the protocol can influence the supply and demand of iAssets. Higher interest rates can discourage excessive borrowing, while lower rates can stimulate it, helping to stabilize the asset pegs.
Revenue Generation: The interest paid on CDPs provides a steady stream of ADA revenue for the DAO. This revenue can be used to fund protocol improvements, development initiatives, or other community-driven projects.
Interest Rate Structure πΈ
The Interest rate is set at a level that balances accessibility with stability. An algorithmic interest mechanism will be the next upgrade to this feature.
Dynamic Adjustments: The DAO has the authority to adjust interest rates based on market conditions. For instance, if there is a high volume of redemptions indicating that iUSD leverage demand, the interest rate may be increased to tighten the supply.
Payment Process βοΈ
During CDP Closure: When a user decides to close their CDP, they must repay the total debt, including the accrued interest. Interest is paid in ADA, based on the iAsset debt. Example: a user accrues 10 iUSD worth of interest, which is paid in an amount of ADA equal to the value of 10 iUSD.
During Liquidation: If a CDP becomes undercollateralized and is liquidated, the interest owed is included in the total debt settled by the liquidation process. The interest portion is extracted first, ensuring that the protocol and INDY Stakers receive their due revenue.
Last updated