Indigo Protocol is an autonomous synthetics protocol built on Cardano. They give their users the opportunity to be exposed to the price of real-world assets on the blockchain environment. These on-chain real-world assets are also known as synthetic assets.
In traditional financial system, the term Synthetic Assets refers to financial products that are derived from underlying assets or financial instruments. They are designed to replicate the characteristics and performance of these underlying assets, however, they are not the same as owning the underlying assets themselves.
For example, lets assume that a financial institution, such as a bank, created a synthetic asset based on Apple Inc. stock. In this case the created synthetic asset could be a synthetic exchange-traded fund (ETF). The created ETF would be backed by financial instruments, such as derivatives, swaps, or options, that are linked to the performance of the Apple Inc. stock. Someone who buys shares in the synthetic ETF would be exposed to the price changes of real Apple Inc. stock but would not own the actual shares of the stock.
The responsibility for synthetic assets typically lies with the parties involved in the creation and issuance of the synthetic asset, while the responsibility for the underlying real assets or financial instruments may lie with the parties that own or hold those assets or instruments (i.e. shareholders).
In the context of decentralized finance (DeFi), synthetic assets represent the same financial instruments as in traditional finance, but in this case they are traded on blockchain platforms by using smart contracts. Similarly, DeFi synthetic assets can be used to gain exposure to a particular asset or market, such as stocks, bonds, commodities, or currencies, without actually owning the underlying asset.
Indigo is an over-collateralized protocol, which means that the user must provide more capital than they are borrowing in order to take a loan.
Synthetic Assets on Indigo Protocol are also known as iAssets. There are two ways you can obtain an iAsset in Indigo: by buying or by minting. Users can buy iAssets if the exchange has any available supply, if not than the second way need to be applied. When minting an asset is important to notice that the user needs to deposit collateral and create a loan. Consider the following:
If you place 450 ADA as total collateral to get a 100 iUSD loan, and the price of 1 iUSD is initially 4 ADA, and the price of ADA drops in the following days, the liquidation process will start when the value of your collateral falls below the required collateral ratio. The collateral ratio is a measure of the amount of collateral that a borrower has pledged to secure a debt or loan, and is calculated by dividing the value of the collateral by the amount of the loan or debt.
For example, if your collateral ratio is 110% (Minimum Collateral Ratio that Indigo Protocol allows), the liquidation process will start when the value of your collateral falls below 440 ADA (100 iUSD x 4 ADA x 110%). If the price of ADA drops further and the value of your collateral falls below 400 ADA (100 iUSD x 4 ADA), the lender will sell the collateral to cover the outstanding debt of 100 iUSD.
The amount of ADA that you will take back after the liquidation process depends on the value of your collateral at the time of the sale. If the value of your collateral is greater than the outstanding debt, you will take back the difference between the two amounts. For example, if the value of your collateral is 450 ADA and the outstanding debt is 100 iUSD (400 ADA), you will take back 50 ADA after the liquidation process.
Liquidation in DeFi (in this case Indigo Protocol) is fast and efficient process, as it is automated by smart contracts and does not require manual intervention. Therefore you cannot lose more money than you placed initially as collateral.
The example described above is a very risky one. This kind of collateral ratio would make sense if you are really sure that the asset being used as collateral is highly stable and unlikely to decline in value. In case of volatile coins such as ADA, the higher the collateral ratio the better.
Indigo needs to use an oracle service to access off-chain information such as value of Bitcoin and USD. Since the oracle services on Cardano just started to emerge, Indigo had to create their own solution. They collaborated with Chainlink, an oracle provided on Ethereum. Chainlink oracle nodes collects off-chain data on Ethereum and these data are transferred to the Cardano blockchain. This is not an ideal solution but at the time of project launch, it was the most feasible option.
INDY in essence is the Governing Token of Indigo DAO. It is a Cardano native asset and as such it can be owned, held, or transferred. The total supply of INDY is 35M with a 6 decimal precision. Indigo is undergoing a Fair Launch, therefore there has been no pre-sale nor private distribution to investors prior to launch. INDY will be distributed every Cardano epoch (five days), over a period of five years. There will be three distribution schedules for the community:
Governance Distribution – Users who opt to stake their INDY into Indigo and participate in DAO Governance by voting on proposals will be eligible for INDY rewards proportionally to their pro-rata share of staked INDY.
Stability Pool Distribution – Users who stake their iAssets in Stability Pools to ensure the protocol’s solvency will be eligible for INDY rewards proportionally to their pro-rata share of staked iAssets.
Liquidity Distribution – Users who provide liquidity in DEXes and stake their LP tokens in Indigo will be eligible for INDY rewards proportionally to their pro-rata share of staked LP tokens.
The distribution of INDY started on 25th of November with an initial value of $2.14. It reached all time high price of $3.52 just 11 days from launch, and as of December 25th (this article was published), the value of INDY is $1.88. Find out more on Coingecko.
The protocol has been operating in Cardano Mainnet for some time, and for now it supports three synthetic assets, iBTC, iUSD, and iEth. Just 1 week after launch it rose to the top of the list of Cardano dApps when measured by growth of the unique accounts created.
As the dashboard clearly indicates, it can be considered a successful beginning.
Indigo protocol as of October 2023, has a total market cap of almost 21 million USD and total value locked of almost 40 million USD.
The Protocol's governance token has shown to be volatile. The value of a governance token can be influenced by a number of factors, including market demand, the performance of the DAO and its underlying projects, and overall market conditions.
Finally, Indigo Protocol seems to be committed on growing and introducing new synthetic assets on their platform.
-D.
Disclaimer: The content is for informational purposes only, may include the author's personal opinion, and does not necessarily reflect the opinion of littlefish Foundation. Most of the information covered in this article was obtained from Indigo-Paper and was analyzed independently.
Author: Donald
Date: 14 Feb 2023
The Cardano Ecosystem has a well-documented history of assigning significance to the naming of its products. The ecosystem was named after the renowned Italian mathematician Gerolamo Cardano, while its native token was named after the English mathematician Ada Lovelace. The latest addition to the ecosystem is the first stablecoin, named Djed, which takes its name from an ancient Egyptian symbol that symbolizes stability ( 𓊽 ). With ancient Egypt's rich history in mathematics, this latest branding choice is yet another testament to the ecosystem's commitment to relevance and significance. It never ceases to impress those who observe it closely.
In basic terms, Djed, a Cardano-based stablecoin, boasts an algorithmic design that promises stability through its use of smart contracts. The digital asset is pegged to the US Dollar and offers an added layer of security through its reserve of base coins (Shen), which are minted or burned based on market demand. With its innovative design, Djed aims to provide a reliable and steady store of value in the volatile world of cryptocurrencies.
The innovative stablecoin, Djed, has been brought to life through the collaboration of fintech firm COTI and Cardano's lead developer Input Output. For more on this topic click here. With the expertise of both entities, this project aims to provide a stable, secure, and cutting-edge solution for the cryptocurrency market. The coming together of these two influential players in the field shows once again their shared vision for a better financial future.
With the rise of cryptocurrencies, the world has been introduced to a new form of currency that operates outside of traditional banking systems. However, one major challenge with traditional cryptocurrencies like Bitcoin, Ethereum or even Cardano is their volatile nature - their value can fluctuate greatly within a short period of time.
In today's ever-changing and volatile market, finding a reliable and stable form of currency can be a daunting task. But, there is an additional player in the digital currency game that aims to change this. Stablecoins, a type of digital token, are designed to maintain a steady value by being pegged to a stable asset, such as the US dollar.
There are two main types of stablecoins: collateralized and uncollateralized.
Collateralized stablecoins are backed by a reserve of assets, such as fiat currency or other cryptocurrencies. The value of the stablecoin is directly tied to the value of the assets in the reserve. For example, if a stablecoin is backed by a reserve of US dollars, the value of the stablecoin will remain close to the value of the US dollar.
Uncollateralized stablecoins, on the other hand, are not backed by a reserve of assets. Instead, they rely on algorithms and market forces to maintain their stability. These stablecoins use complex economic models to ensure their value remains stable, even in volatile market conditions.
Another type of stablecoin is the algorithmic stablecoin. They are designed to automatically adjust their supply to maintain stability in the face of market fluctuations by employing algorithms and smart contracts to automatically buy and sell tokens to keep their value in line with the stable asset they are pegged to.
For example TerraUSD, also known as UST, was an algorithmic stablecoin designed to maintain a peg to the US dollar by adjusting its supply based on demand.
The collapse of TerraUSD (UST) in the past year has cast doubt on the reliability of algorithmic stablecoins and its ability to maintain its stability. This has adversely impacted the public's perception and adoption of this new form of digital currency.
Despite the setback, the technology behind stablecoins is continually evolving and improving. As a result, it is highly likely that stablecoins will revolutionize the world of finance, providing a more stable form of currency for both individuals and businesses. As the industry continues to mature and regulatory frameworks are developed, it's possible that stablecoins may gain wider acceptance and become a viable alternative to traditional currencies.
Djed has entered the market, promising to provide stability and security to its users. What sets it apart from other stablecoins is its overcollateralization with each Djed token backed by at least four times its value in reserve and being completely decentralized governed by smart contracts and driven by the community.
To supplement the Djed reserve pool, the creators of the stablecoin have also introduced a reserve coin called Shen. While Shen's value may fluctuate, it absorbs any price changes in ADA to ensure stability for Djed users.
To maintain the peg ratio of the stablecoin, a minting fee is collected in an ADA reserve pool. As the pool grows from transactions, it increases liquidity and the price of Shen. According to simulations, this growth can reach up to 10% per year.
But the benefits of owning Shen don't end there. Shen owners also receive a share of the ADA pool as a reward for participating in maintaining the peg ratio. These rewards are paid out when withdrawing Shen for ADA.
However, there are limitations to Shen's flexibility. Holders won't be able to convert Shen to ADA if the reserve ratio falls below the minimum amount defined by the contract. Similarly, the contract prevents any further minting of Shen once the reserve ratio hits the maximum amount to avoid diluting rewards for Shen holders.
Djed users also have priority in redeeming their tokens for ADA. With collateralisation ranging between 400% and 800%, Djed ensures a high level of security for its users.
While Djed may be a new entrant to the stablecoin market, its overcollateralization and reserve coin system show promise for providing stability and liquidity to its users. With the potential for growth and rewards, it will be interesting to see how Djed fares in the market in the coming months.
Disclaimer: Most of the information in the sections that follow, you will find an abridged version of the Djed Technical Whitepaper. It is important to note that the information presented is simplified and intended for the general audience. The complete technical whitepaper should be consulted for a more comprehensive understanding of the Djed stablecoin and its underlying technology.
There exist two versions of Djed:
Minimal Djed this version is designed to be as simple, intuitive, and straightforward as possible, without compromising stability.
Extended Djed: this more complex version provides some additional stability benefits. The main differences are the use of a continuous pricing model and dynamic fees to further incentivize the maintenance of the reserve ratio at an optimal level.
The current implemented version is Minimal Djed.
In the whitepaper the protocol provides several stability properties which are:
Peg upper and lower bound maintenance (Theorem 1 & 2): the price will not go above or beyond the set price. In the normal reserve ratio range, purchases and sales are not restricted, and users have no incentive to trade stablecoins outside the peg range in a secondary market.
Peg robustness during market crashes (Theorem 3): up to a set limit that depends on the ' reserve ratio, the peg is maintained even when the price of the base coin falls sharply.
No insolvency (Theorem 4): no bank is involved, so there is no bank contract to go bankrupt.
No bank runs (Theorem 5): all users are treated fairly and paid accordingly, so there is provably no incentive for users to race to redeem their stablecoins.
Monotonically increasing equity per reserve coin (Theorem 6): under some conditions, the reserve surplus per reserve coin is guaranteed to increase as users interact with the contract. Under these conditions, reserve coin holders are guaranteed to profit.
No reserve draining (Theorem 7): under some conditions, it is impossible for a malicious user to execute a sequence of actions that would steal reserves from the bank.
Bounded dilution (Theorem 8): there is a limit to how many reserve coin holders and their profit can be diluted due to the issuance of more reserve coins.
These properties are proved mathematically to demonstrate the stability and robustness of the Minimal Djed stablecoin system.
Minimal Djed is a simple solution that addresses major stability concerns, but it is susceptible to a few known minor issues. These minor issues are addressed in an extended version of Djed, called Extended Djed, which is more complex but retains the same stability principles as Minimal Djed.
Reserve Draining Attack with Price Foresight: Minimal Djed is vulnerable to a variation of Theorem 7 if the assumption of constant exchange rate does not hold. A malicious user who can predict how the exchange rate will evolve can drain the bank's reserves.
Wholesale Discount: In Minimal Djed, the price is fixed before the action, but every action changes the balance of reserves and StableCoins/ReserveCoins, affecting the future price. Therefore, the total price paid or received depends on how the StableCoins/ReserveCoins are bought or sold.
Zero equity: When the reserve ratio falls to one, the equity falls to zero, making the target price of ReserveCoins also zero. A minimal price was introduced to avoid unlimited purchases, but this might be inconsistent with the market price and discourage users from buying ReserveCoins.
Rigid Fees: The pricing model doesn't allow for smooth adjustments to fees to encourage operations that drive the reserve ratio to an optimal level and discourage operations that drive it away from the optimum.
"Haircut" for Stablecoin Holders: In the event of a peg loss, StableCoin holders suffer financial losses, and Minimal Djed does not have mechanisms to cover these losses.
ReserveCoin Bank Runs: The analogue of Theorem 5 for reservecoins does not hold, and when the reserve ratio is close to rmin, ReserveCoin holders may race against each other to sell their ReserveCoinss, leading to further sales being blocked when rmin is reached.
To understand how DJED will fare in different market scenarios, a chart analysis has been conducted to identify four potential scenarios related to changes in the price of ADA. The analysis concludes that while it is difficult for DJED to lose parity, holders of SHEN, the reserve coin for DJED, run a greater risk.
In the worst-case scenario, if the price of ADA falls significantly (more than 75% from the breakeven point), and DJED holders do not burn their tokens, it could lead to a challenging situation. However, if DJED holders do burn their tokens, it could help maintain the peg ratio and prevent losses for SHEN holders.
Visit the following article to find the original chart analysis illustrated below, explained in great detail.
The crash of the cryptocurrency Luna was primarily caused by its connection to TerraUSD (UST), according to reports. On May 7, 2022, over $2 billion worth of UST was unstaked from the Anchor Protocol, leading to a rapid liquidation. This caused the depegging of UST from the US dollar and sparked panic among traders who started exchanging 90 cents worth of UST for $1 of Luna.
The sell-off led to an increase in the circulating supply of Luna, causing its price to drop dramatically to a fraction of a penny. This crash was largely due to the instability of UST, which was not backed by any form of cash, treasuries, or other assets.
The Luna crash has raised concerns about the stability of cryptocurrencies that are not backed by any tangible assets. In the absence of a solid backing, these currencies are highly susceptible to market volatility and can quickly lose value. This highlights the importance of investing in cryptocurrencies that are backed by tangible assets or have a stable backing mechanism.
Furthermore, the Luna crash serves as a cautionary tale for those considering investing in cryptocurrencies that are not backed by anything. It is crucial for investors to thoroughly research and understand the underlying mechanics of a cryptocurrency before investing their hard-earned money.
The Djed algorithmic stablecoin design was mostly influenced by three stablecoin protocols:
Seigniorage Shares: The seigniorage shares protocol is an early example of an algorithmic stablecoin. It adjusts the circulating supply by encouraging users to sell their stablecoins in exchange for seigniorage shares. Djed's reservecoins are similar to seigniorage shares but its revenue comes from market making instead of seigniorage.
DAI: DAI is a crypto-collateralized stablecoin that provides stablecoin-denominated loans instead of reserves. Unlike commercial bank money, crypto-collateralized stablecoins cannot be exchanged for anything by withdrawing from the stablecoin contract's reserves because there are no reserves.
Staticoin: The Staticoin protocol has a riskcoin similar to Djed's reservecoin. The main difference is that riskcoin provides leverage with respect to base coins, while reservecoin's appeal is mostly in the market making revenue through fees, as well as some leverage. Djed also has minimum and maximum reserve ratio thresholds, which Staticoin does not have.
These three protocols have proven to provide stability even in volatile markets, making it clear that Djed is nothing like TerraUSD. With all the features described in this article and influences, Djed is poised to make a significant impact in the world of algorithmic stablecoins.
Relevant Links:
Unofficial DJED Twitter Account
-D.
Disclaimer: The content is for informational purposes only, may include the author's personal opinion, and does not necessarily reflect the opinion of littlefish Foundation. Most of the information covered in this article was obtained from Djed Technical Whitepaper and was analyzed independently.
Author: Donald Date:
19 Feb 2023
Liqwid Finance
Liqwid is a decentralized and non-custodial liquidity protocol, built on Cardano’s Plutus smart contract platform that provides an efficient and secure way for users to participate as lenders or borrowers. The protocol is completely open source (check out their ), and enables anyone to interact with a user interface client, a contract endpoint API or directly with the smart contracts on the Cardano blockchain.
What is a Liquidity Protocol and Why it Matters?
In the world of cryptocurrency, liquidity is a crucial factor in determining the success of a trading platform. Simply put, liquidity refers to the ease with which one can buy or sell an asset without affecting its price. This is where liquidity protocols come in.
A liquidity protocol is a decentralized platform that facilitates the exchange of cryptocurrencies in a highly liquid and efficient manner. This is achieved by using automated market makers (AMMs) and smart contracts, which allow users to trade directly with each other without the need for an intermediary.
One of the key benefits of using a liquidity protocol is that it allows for faster, cheaper and more secure transactions compared to centralized exchanges. With a liquidity protocol, users can trade cryptocurrencies with other users without the need for a central order book or a matching engine, which can be slow and cumbersome.
Automated market makers play a critical role in liquidity protocols. They provide liquidity for the platform by locking up a certain amount of cryptocurrency in a smart contract, which is then used to facilitate trades. The value of the cryptocurrency is determined by an algorithm that takes into account the amount of liquidity available and the demand for a particular asset.
One of the most popular liquidity protocols is , which is built on the Ethereum blockchain. Uniswap uses a popular AMM model known as the Constant Product Market Maker. This model ensures that the product of the two currencies in the pool remains constant, which helps to maintain a stable price for the asset.
The popularity of liquidity protocols has led to the growth of the decentralized finance (DeFi) ecosystem. DeFi has become an important alternative to traditional financial systems, allowing users to access financial services such as lending, borrowing, and trading in a decentralized and trustless environment.
Supplying and Earning: How to use Liqwid's Liquidity Protocol for Cardano
Liqwid allows users to supply and borrow cryptocurrencies on the Cardano blockchain. The platform offers an easy way for users to supply liquidity and earn interest, while also providing an efficient way for borrowers to access funds.
To supply liquidity, users need to browse the "Supply Markets" section and select the asset they want to deposit. Once the user has selected the amount to supply, the transaction needs to be approved in their Cardano dApp wallet. Once the transaction is confirmed, the user's supplied liquidity is registered, and they begin to earn interest.
The interest earned is perpetually based on variable borrow rates calculated by supply and demand conditions per Market. The simulator tab in the app allows users to enter arbitrary parameters and utilization ratios to see the borrow interest rate model in action. Each supported asset on the protocol has an individual Market of supply and demand with its APY, which updates every few seconds based on the amount of liquidity supplied compared to borrowed.
There is no minimum or maximum limit to the amount users can supply, but it's important to consider the blockchain transaction cost when interacting with smart contract transactions.
Liqwid protocol only supports borrowing with variable interest rates driven by supply and demand in each Market. As interest rates are calculated per Market, users can have different borrow rates for each asset.
To withdraw, users need to navigate to the "Withdraw" tab in the "Supply Markets" section and select the amount to withdraw. It's essential to confirm that there is sufficient liquidity to complete the withdrawal order. Users can opt-out their assets from being used as collateral by switching the "Collateral" toggle on the asset(s) they want to opt-out from.
Borrowing with Liqwid's Liquidity Protocol: What You Need to Know
Liqwid allows users to supply and borrow cryptocurrencies on the Cardano blockchain. Borrowing with Liqwid provides users with a way to access liquidity without selling their long-term crypto-asset holdings. Additionally, it can be useful for startups covering their operating expenses.
Borrowing on Liqwid is enabled once a user supplies any supported asset to be used as collateral. After supplying the collateral, users can then browse over to the "Borrow Markets" section and click on "Borrow" for the asset they want to open a new loan in. The maximum amount that can be borrowed depends on the supplied asset(s), the amount that has been supplied, and the market's available liquidity.
Users need to repay the loan in the same asset they borrowed. The interest rate is calculated from the supply and demand ratio of the asset, and it changes constantly as supply and borrow actions are executed in a Market.
A Market's collateral factor can range from 0-90% and determines the increase in liquidity (borrow limit) that a user receives by minting the qToken. High market cap or liquid assets typically have high collateral factors, while low market cap or illiquid assets have low collateral factors.
If the borrow limit decreases, the likelihood of reaching the liquidation threshold increases. Borrow positions are perpetual, meaning there is no fixed time period to repay the loan. However, as time passes, the accrued interest on the loan increases, which causes the borrow limit to decrease.
Users need to repay the loan by navigating to their open positions and clicking the "Repay" button for the asset they borrowed from the protocol. The key to avoiding liquidation is to maintain conservative borrow limit levels, which can be done by repaying the loan or supplying more assets to increase the borrow limit.
Relevant Links:
-D.
Disclaimer: The content is for informational purposes only, may include the author's personal opinion, and does not necessarily reflect the opinion of littlefish Foundation. Most of the information covered in this article was obtained from and was analyzed independently.
