Optim is excited to announce our newest collaboration with Indigo Laboratories, Inc., developers of Indigo — the leading synthetics platform building natively on Cardano. This collaboration has a goal of making it seamless for Indigo users to leverage Optim’s Strategy Vaults. Optim’s vaults will make it possible for users to automate several core functionalities within Indigo’s platform to help execute strategies such as passive accrual of yield streams, reducing the need for constant participation and manual interaction with the protocol.
Optim’s Yield Aggregator can be leveraged to abstract away the complexity and reduce the barriers to entry for the average user to interact with Indigo. Optim’s Strategy Vaults will allow users to subscribe to a specific trading or yield accruing strategies to be executed within Indigo by depositing their funds into respective vaults and letting the smart contracts automate interactions. There are three particular strategies being worked on for implementation with Indigo in the future.
Stability Pool Redemption
Indigo’s Stability Pool is a core mechanism of Indigo which is designed to help the protocol maintain solvency by ensuring that minted iAssets are properly collateralized at all times. In order to participate in this mechanism, users deposit into an individual Stability Pool with their iAssets, which can then be burned to liquidate undercollateralized positions. A Stability Pool participant could liquidate and obtain a position’s underlying ADA at a discount to the market price.
Optim’s Strategy Vaults could be used with Indigo as follows: Users will deposit ADA into an Strategy Vault that will use the funds to purchase iAssets in the open market if the user expects the iAsset price to rise, potentially giving Vault users the opportunity to receive liquidated ADA. Alternatively, a similar strategy could begin with receiving the iAsset itself and continuing in the same following steps.
The iAssets could then be deposited into their respective Indigo Stability Pools. During any future liquidation event, iAssets would be burned to offset outstanding loans, which is rewarded by redeeming the underlying ADA (which may be at a price lower than current market prices) as well as via INDY reward distributions. The ADA proceeds could then be reinvested back into the same strategy to compound any positive yield. A user would be able to withdraw their equity in the Strategy Vault, receiving ADA and INDY rewards accrued.
A user looking to short an asset could deposit ADA into a specific Strategy Vault and then use the pooled funds to collateralize and mint the strategy’s iAsset. These iAssets could then be sold in the open market with the intent to buy the position back at a later time if certain market conditions have been met. Each strategy vault would allow programmable customization such as setting a limit sell or stop loss thresholds to determine when to exit the strategy’s position. The iAssets could then be sent to Indigo to be burned and reclaim the underlying ADA to return the equity respectively.
A user looking to execute a long position regarding an asset would be similar in nature to going short, though there are opportunities for more complex strategies. Users could start by depositing their ADA into a Strategy Vault where half of the funds would be used to mint the strategy’s iAsset. The minted iAsset alongside the remaining ADA could then be paired to provide liquidity in a DEX to accrue DEX rewards until the strategy’s exit parameters are met. The Strategy Vault could then exit the position, burn iAssets to unlock the underlying ADA and any rewards accrued back to the user.
Alternatively, a strategy that is not exposed to impermanent loss (from providing liquidity in a DEX) is possible where all the initial ADA is used to mint the iAsset, which is then held in the strategy vault until the exit parameter is met.
These are just some examples of how a user could combine Indigo with Optim’s Strategy Vaults to automate execution of their strategy. We believe that together Indigo and Optim Strategy Vaults could reduce the time commitment that’s needed to execute many financial strategies within DeFi.
About Indigo Protocol
Indigo has embarked on a mission to tokenize the real world economy and provide on-chain exposure to off-chain assets that users would not otherwise have access to. By minting iAssets that track the price of the real world asset, users are able to trade these financial instruments regardless of their geographic location and market hours, allowing fractional ownership and removing the hassle of purchasing and holding custody of the real world equivalent.
These powerful capabilities will expose traders to a much larger range of assets and enable the implementation of more complex trading strategies than what is currently available utilizing on-chain decentralized platforms. Indigo uses different mechanisms to ensure the stability and health of their synthetic derivative infrastructure. This includes collateral management, stability pools and liquidation processes that have been carefully designed to incentivize user behaviors to align with the betterment and sustainability of the protocol.