Cardano Spotlight #1: Indigo Protocol
Overview:
Indigo Protocol is the first synthetic derivatives exchange on Cardano. It has been around for approximately a year now and has performed relatively well in the market. It is DAO governed, sufficiently decentralized and serves the interests of its community. The protocol provides access to what are termed “iAssets” on the platform. These assets are currently available in three forms: iBTC, iEth and iUSD. Each synthetic derivative is a market product that is designed to give exposure to the price action of Bitcoin, Ethereum and the United States Dollar respectively. Each of these assets are backed by Ada, the native asset of the Cardano blockchain. This means that these products differ from wrapped tokens on other blockchains in the sense that the underlying asset is not the named asset in the product description. Further reading from the Indigo Protocol Team is available in the Indigo Paper and their academic yellow paper.
DApp Features:
The DApp allows you to swap Ada for iAssets within the protocol itself. This is powered by Dexter and aims to give you the best price at current market rates.
The DApp allows you to open up collateralized debt positions for your newly bought iAssets. This feature allows you to borrow against the value of your collateralized debt position. This is an advanced function and not something I would recommend to users that are new to the crypto space.
A less risky strategy that can be utilized on the DApp is to provide liquidity to its stability pools. This allows the user to provide liquidity to the protocol and earn interest on their assets without the need to open up a collateralized debt position. Indigo provides an indicator of ‘HRA’ (historical returns annualized) to suggest the returns that are available on a user’s iAssets. There is no guarantee that past performance is indicative of future gains and these are provided for informational purposes only.
For those that wish to participate in the governance of the DAO, you will need to own the Indy governance token (tokenomics discussed here) and use the stake mechanism to stake your tokens. Governance proposals can be discussed in the Indigo governance forum.
For those that wish to yield farm the Indy token against Ada, check out farming opportunities on MuesliSwap, MinSwap, SundaeSwap and WingRiders for liquidity pools with differing rates dependent on the DEx.
Project Potential:
Full disclosure, I yield farm the Indy token on SundaeSwap and I have been watching the development of iAssets since the protocol launched. However, I am yet to invest in iAssets themselves, but I do appreciate that I can purchase products that give me access to the price action of blue chip crypto assets. The iBTC, iEth and iUSD stability pools offer the opportunity to earn yield on these assets and offer potentially very lucrative returns. At present, with these assets performing under peg, there is a potential arbitrage opportunity on these products with iUSD perhaps being the most notable. There is a temperature check discussion in the governance forum that discusses this at length for those that may be interested in this potential opportunity.
It must be noted that Indigo is a pioneer in this space. So far as I can tell, they are the first protocol to offer synthetic assets on the Cardano blockchain. This means that they have early mover advantage. I like that they offer proposals in the form of temperature checks in the governance forum. It is also encouraging to see that the community is run by investors, for investors. DefiLlama suggests that liquidity is healthy at present with an impressive level of TVL (total value locked). Further, the tokenomics on GitHub look very healthy too.
My final thoughts at present are that Indigo Protocol will succeed. This is why I am an active investor in the Indy token. I am bullish on its potential and it is encouraging that such a sound and decentralized project was built during a bear market. Projects like this are the reason that I invest in Cardano DeFi and now may be a good opportunity to invest in iAssets before the Bitcoin Halvening event in April and the likely commencement of the ensuing bull run. That said, pay attention to the upcoming V2 of the protocol where more products are likely to be launched. Finally, remember that there is no guarantee that synthetic derivatives will take off long term in the crypto space. To this end, this is simply an overview of the protocol and not investment advice. For more information on synthetic derivates as an asset class, Coin Telegraph’s overview is exemplary.
Learn more:
DApp Central Youtube Channel Indigo Playlist
Cardano with Paul Youtube Channel — Indigo Video Tutorial
Learn Cardano — Eric Coley Interview
Disclaimer: this is NOT financial advice. I’m a cow and I like to eat cereal. Any knowledge gained from this post is merely incidental and you are responsible for your own financial decisions. Make investments wisely and make sure to do your own research.
