Algorithmic Interest v2 — Live on Indigo

Indigo Protocol has recently implemented Proposal #94, introducing a refined Algorithmic Interest v2 mechanism across all iAssets. This upgrade builds on the original algo-managed interest model, which has already proven effective in maintaining peg health, while adding smarter adjustments to make the system more competitive and adaptive.

Why the Update Was Needed

Indigo’s first iteration of algorithmic interest helped stabilize the peg by automatically adjusting borrowing costs based on overall collateral health. However, as market conditions evolve and new features are added, the need for finer tuning became clear.

Proposal #94 introduced low-impact but meaningful refinements designed to:

• Ensure sustainable peg stability
• Improve protocol competitiveness
• Offer fairer incentives to CDP owners

How the New Model Works

At its core, the updated formula links interest rates to the system’s collateralization level, similar to its previous version.

In the new version, the discount is applied only to the variable part, while the base interest remains unchanged.

Where:

• Base Interest (BaseInt): Minimum interest charged
• NTCR : Neural iAsset Total Collateral ratio (healthy baseline)
• ITCR (iAsset TCR): Current iAsset Total Collateral Ratio
• CTCR (Capped TCR): Maximum capped Total Collateral Ratio
• Upper Limit Int: Highest possible interest (if ITCR >= CTCR)

This design means interest rates rise as the system becomes overcollateralized and decline as it approaches the neutral collateral ratio.

Redeemables-Linked Discounts

The redeemable iAssets-linked discount mechanism is retained from the previous version, where a significant share of iAssets being redeemable signals a healthy peg. In such cases, CDPs are rewarded with discounted interest rates, reducing borrowing costs.

• More redeemables → higher discount → lower rates
• Fewer redeemables → less discount → higher rates

Discount Rate =(1 -min[ 100% , RA Buffer rate * TMS ] )

Where:

• RA: Redeemable iAssets(average redeemable asset over an epoch)
• TMS: Total Minted Supply
• Buffer rate: % of TMS deemed healthy to be within the redeemable zone

The maximum discount possible was changed from 95% to 100%. In case of sufficient redeemable iAssets, the discount rate will be 100% and the final interest rate will be equal to its lower limit, the base interest rate.

Parameters by iAsset

Each iAsset has its own calibrated parameters:

iUSD

• Base Interest: 7.5%
• NTCR: 200%
• CTCR: 350%
• Upper Limit Int: 25%
• Buffer Rate: 5%

iBTC

• Base Interest: 5%
• NTCR: 170%
• CTCR: 250%
• Upper Limit Int: 15%
• Buffer Rate: 5%

iETH

• Base Interest: 5%
• NTCR: 170%
• CTCR: 250%
• Upper Limit Int: 10%
• Buffer Rate: 5%

iSOL

• Base Interest: 5%
• NTCR: 170%
• CTCR: 250%
• Upper Limit Int: 10%
• Buffer Rate: 5%

What This Means for Indigo Users

• For CDP owners: Borrowing costs are now more responsive. Healthy collateral and strong peg conditions mean lower rates. The upper limit of interest rate is capped, ensuring proper management of debt. The max discount is increased to 100%, ensuring lower interest for CDP owners during healthy conditions.
• For the protocol: A more competitive and flexible interest model ensures Indigo’s iAssets remain sustainable in changing markets.

Looking Ahead

Proposal #94 represents another step in Indigo’s evolution toward robust, algorithmic stability mechanisms. By combining collateral-based interest scaling with redeemable-linked discounts, Indigo continues to strengthen its role as a resilient CDP protocol in the Cardano ecosystem.

The update is already live, and its effects on peg resilience and CDP behavior will be closely observed in the coming months.