Indigo x Minswap - Peg Stabilizing Liquidity Pools

[GENERAL] Name and surname of main applicant

Long Nguyen Le Vu

[GENERAL] Are you delivering this project as an individual or as an entity (whether formally incorporated or not)

Entity (Incorporated)

[GENERAL] Please specify how many months you expect your project to last (from 2-12 months)

5

[GENERAL] Please indicate if your proposal has been auto-translated into English from another language

No

[GENERAL] Summarize your solution to the problem (200-character limit including spaces)

Implement a delegate-managed, algorithmic fee adjustment system for iAsset's liquidity pools on Minswap, enhancing stable asset peg stability and capital efficiency in Cardano's DeFi ecosystem.

[GENERAL] Does your project have any dependencies on other organizations, technical or otherwise?

No

[GENERAL] If YES, please describe what the dependency is and why you believe it is essential for your project’s delivery. If NO, please write “No dependencies.”

No dependencies.

[GENERAL] Will your project’s output/s be fully open source?

Yes

[GENERAL] Please provide here more information on the open source status of your project outputs

All the updates will be reflected on Minswap’s Github repository.

[METADATA] Horizons

DeFi

[SOLUTION] Please describe your proposed solution

The Cardano ecosystem, while rapidly evolving, faces a significant challenge in maintaining the stability and efficiency of its stable assets liquidity pools. This issue is particularly acute for assets like iUSD (Indigo Protocol's stablecoin) paired with ADA. Traditional static fee structures in decentralized exchanges (DEXs) are ill-equipped to handle the dynamic nature of crypto markets, leading to several critical problems:

1. Peg Instability: Without adaptive fee mechanisms, stable assets often deviate from their intended peg, undermining user trust and utility.
2. Inefficient Capital Utilization: Static fees fail to optimize liquidity provision, resulting in suboptimal returns for liquidity providers (LPs) and reduced overall pool efficiency.
3. Vulnerability to Market Volatility: Fixed fee structures leave pools exposed to sudden market shifts, potentially leading to significant losses for LPs and destabilizing the entire ecosystem.
4. Limited Flexibility for Protocol Improvements: The inability to adjust fees dynamically hampers the implementation of advanced strategies to enhance pool performance and user experience.

Our proposed solution is a collaborative effort with Indigo Labs to implement a sophisticated, delegate-managed fee adjustment system for liquidity pools. This system will implement an algorithm to be specifically tailored to enhance the stability and efficiency of stable asset pools, with a primary focus on Indigo's synthetic assets.

Key components of our solution include:

1) Delegated Fee Management:

• Implementation of a governance mechanism allowing LP token holders to delegate fee management authority to a trusted entity (e.g., Indigo Fee Working Group - IFWG).
• A secure voting system for proposals related to fee delegation, revocation, and transfer of management authority.

2) Dynamic Fee Algorithm:

• Development of a sophisticated algorithm by the IFWG designed specifically for "Peg Stability of the LP."
• Utilization of real-time market data from Indigo's Iris indexer to inform fee adjustments.

3) Automated Fee Adjustment System:

• Creation of an off-chain system to compute and issue fee change requests based on the algorithm's output.
• Integration with Minswap's LP Management system to process these requests efficiently (typically within 60 seconds).

4) Transparent Governance Process:

• Implementation of a clear proposal and voting mechanism for LP token holders.
• Establishment of rules for proposal submission, including a refundable deposit system to prevent spam.

5) User Interface Enhancements:

• Development of intuitive interfaces for proposal creation, voting, and fee management within the Minswap platform.

[IMPACT] Please define the positive impact your project will have on the wider Cardano community

The Indigo x Minswap Peg Stabilizing Liquidity Pools proposal will have a transformative impact on the Cardano ecosystem, extending far beyond the immediate benefits to stable asset liquidity. Here's how this initiative will positively influence the wider Cardano community:

1) Enhanced Stable asset Stability and Utility:

• By maintaining tighter pegs for stable assets like iUSD, we increase their reliability and utility across the entire Cardano ecosystem.
• This stability encourages broader adoption of Cardano-native stable assets in various DeFi applications, from lending protocols to decentralized marketplaces.

2) Improved Capital Efficiency:

• Dynamic fee management optimizes returns for liquidity providers, attracting more capital to Cardano's DeFi ecosystem.
• Efficient capital utilization supports the growth of Total Value Locked (TVL) in Cardano, a key metric for ecosystem health and attractiveness to investors.

3) Increased DeFi Competitiveness:

• This advanced liquidity management system positions Cardano as a leader in DeFi innovation, competing more effectively with other blockchain ecosystems.
• It demonstrates Cardano's capability to support sophisticated financial instruments and strategies, attracting more developers and projects to the platform.

4) Enhanced User Experience:

• Stable and efficient liquidity pools result in better trading experiences for users, with reduced slippage and more predictable outcomes.
• This improvement in UX can lead to increased user retention and attraction of new users to the Cardano ecosystem.

5) Ecosystem Interoperability:

• The proposal sets a new standard for advanced DeFi operations on Cardano, encouraging other protocols to develop compatible and complementary systems.
• This fosters a more interconnected and robust DeFi landscape within Cardano.

6) Educational Value:

• The transparent governance and fee management processes serve as educational tools for the community, enhancing understanding of DeFi mechanics.
• This knowledge dissemination can spark further innovation and engagement within the Cardano ecosystem.

7) Community Empowerment:

• The governance mechanism empowers LP token holders, fostering a sense of ownership and engagement within the Cardano community.
• This aligns with Cardano's ethos of decentralization and community-driven development.

[CAPABILITY & FEASIBILITY] What is your capability to deliver your project with high levels of trust and accountability? How do you intend to validate if your approach is feasible?

Minswap Labs understands the critical importance of trust and accountability when building in Cardano. We've established ourselves as a leader within the Cardano ecosystem through our unwavering commitment to these values.

Proven Track Record of Excellence:

Our success speaks for itself. Minswap Labs is the team behind Minswap DEX (https://minswap.org/), currently boasting the highest Total Value Locked (TVL) on Cardano. Not only this, but we’re also progressing great on ALL of our approved proposals from past Catalyst Funds. These achievements demonstrate our capability to execute complex DeFi projects with the utmost security and transparency.

Validating Feasibility: A Multi-Pronged Approach

We don't just rely on past success; we meticulously validate our approach before development begins. Here's how:

• Deep Expertise in Cardano Development: Our team comprises several highly experienced Plutus engineers that have been working on developing Plutus-based Smart Contracts for more than 3 years.
• Community Collaboration: We believe in open communication. Throughout the development process, Minswap Labs will actively engage with the Cardano community. By soliciting feedback from users, developers, and other stakeholders, we can ensure the final product aligns with the needs and expectations of the community, fostering widespread adoption and trust.
• Building on Transparency: Open-sourcing further reinforces our commitment to transparency. This allows the community to scrutinize the code. Developers can contribute to the project's ongoing evolution, accelerating innovation within the Cardano DeFi ecosystem.

[PROJECT MILESTONES] What are the key milestones you need to achieve in order to complete your project successfully?

LP Management System System Design and Architecture (1 month)

• Milestone Output: Detailed system architecture and technical specifications for the LP Fee Management system.
• Acceptance Criteria:
• Documentation of system components, including off-chain computation logic, and integration points with Minswap's existing infrastructure.
• Evidence:
• System architecture diagrams
• Technical specification documents

LP Management System Development (1 month)

• Milestone Output: Fully developed and tested LP Fee Management system.
• Acceptance Criteria:
• Implementation of proposal creation, voting, and fee adjustment mechanisms.
• Integration with existing Minswap smart contracts.
• Successful deployment and testing on Cardano testnet.
• Successful deployment and testing on Cardano mainnet.
• Evidence:
• User Guide to use the LP Management system on mainnet
• Link to a transaction using the LP Management system to change Fees on a Liquidity Pool

Creation of a specialised Working Group & Peg Stability Algorithm (1 month)

• Milestone Output: Empowered Working group to manage the Fee and a fully developed LP Fee Peg Stability Algorithm.
• Acceptance Criteria:
• Indigo DAO appoints a Working Group to manage LPs and design a formula
• An advanced financial engineering formula is designed to increase LP Fee Peg Stability
• Evidence:
• On-chain vote by the Indigo DAO to appoint a Working Group to manage LPs
• Article detailing the LP Fee Peg Stability Algorithm

Development to Integrate the Algorithmic Peg Stability Formula (1 month)

• Milestone Output: Algorithmic Peg Stability Formula is integrated into the Minswap LP Management System.
• Acceptance Criteria:
• Formula successfully uses the latest data from the Iris indexer to make automatic LP Fee adjustments using the LP Management System on testnet.
• Successful integration between off-chain computation and on-chain execution.
• Evidence:
• Link to a Liquidity Pool on testnet where the Formula is being applied.

 Deployment and Launch (1 month)

• Milestone Output: Algorithmic Peg Stability Formula is applied into at least one Liquidity Pool on mainnet.
• Acceptance Criteria:
• Formula successfully uses the latest data from the Iris indexer to make automatic LP Fee adjustments using the LP Management System on mainnet.
• Evidence:
• Link to a Proposal where its approved to delegate the LP Fee management of at least 1 Liquidity Pool by the Indigo Working group and apply their formula
• Progress Report on how the Formula has been implemented in the LP Fee Management System

[RESOURCES] Who is in the project team and what are their roles?

Minswap Labs

This Proposal is being spearheaded by Minswap Labs, a passionate and experienced team dedicated to empowering the Cardano DeFi ecosystem. Our team comprises talented individuals with diverse backgrounds, united by a common goal: to create innovative and user-friendly DeFi solutions on Cardano and take it to the next level.

Leadership with a Vision:

Long Nguyen (Co-founder): A DeFi native and visionary leader, Long’s expertise has been instrumental in shaping Minswap DEX into the leading dApp within Cardano DeFi. His experience and insights gleaned from interviews like this one at Cardano Summit 2023 will guide the Peg Stabilising LP’s development.

https://youtu.be/QKXPONr6XRY

Technical Brilliance:

Our team consists of highly skilled developers and project managers with a deep understanding of Cardano’s architecture and security best practices. The team is strategically based in the US, Asia and Europe. These talented individuals will ensure the LP Management System is performant, and integrates seamlessly with the existing Minswap DEX infrastructure.

Indigo Labs

Cody Butz - Developer

Cody is a seasoned software developer with over 10 years of experience. Leading the development of Indigo Protocol, a top DeFi protocol on the Cardano Blockchain. Cody will be leading the development of this SDK.

LinkedIn: https://www.linkedin.com/in/cody-butz-b4b16a37/

Zachary Sluder - Developer

Zach is a TypeScript developer with experience building open-source SDKs in the Cardano ecosystem, such as Iris and Dexter. Zach will assist Cody with the development of this project.

LinkedIn: https://www.linkedin.com/in/sluder/

This proposal is also supported by Indigo Labs, developers of Indigo Protocol. Indigo Labs has a few recent successful proposals such as the following :

Indigo Iris - https://cardano.ideascale.com/c/idea/113424

V2 Audit - https://cardano.ideascale.com/c/idea/112532

Multi-DEX SDK - https://cardano.ideascale.com/c/idea/60673

[BUDGET & COSTS] Please provide a cost breakdown of the proposed work and resources

Milestone 1: LP Management System System Design and Architecture (1 month)

• 1 Senior Blockchain Architect: 160 hours @ $95/hour = $15,200
• 1 Technical Product Manager: 80 hours @ $110/hour = $8,800 

Total: $24,000 (68,500 ADA)

Milestone 2: LP Management System Development (1 month)

• 2 Senior Blockchain Architects: 160 hours each @ $95/hour = $30,400
• 1 Technical Product Manager: 80 hours @ $110/hour = $8,800 

Total: $39,200 (112,000 ADA)

Milestone 3: Creation of a specialised Working Group & Peg Stability Algorithm (1 month)

No costs associated with this Milestone

Milestone 4: Development to Integrate the Algorithmic Peg Stability Formula (1 month)

• 2 Senior Blockchain Architects: 160 hours each @ $95/hour = $30,400
• 1 Technical Product Manager: 80 hours @ $110/hour = $8,800 

Total: $39,200 (112,000 ADA)

Milestone 5: Deployment and Launch (1 month)

• 1 Senior Developer: 80 hours @ $85/hour = $3,400 

Total: $24,800 (70,857 ADA)

Additional Costs:

• Project Management (throughout 6 months): 160 hours @ $85/hour = $13,600 (38,850 ADA)

Grand Total: $140,800 (around 400,000 ADA)

[VALUE FOR MONEY] How does the cost of the project represent value for money for the Cardano ecosystem?

This Proposal represents a significant leap forward in DeFi infrastructure on Cardano. By enabling dynamic, data-driven fee adjustments, we can create more stable, efficient, and attractive liquidity pools. This not only benefits iUSD and other stable assets but also sets a new standard for advanced DeFi operations on the Cardano network.

The collaboration between Indigo Labs and Minswap brings together deep expertise in stable asset mechanics and DEX operations, ensuring a robust and well-integrated solution. This project has the potential to significantly enhance the stability, efficiency, and attractiveness of Cardano's DeFi ecosystem, paving the way for increased adoption and innovation.

We hope to lay a foundation for sustained growth and innovation in Cardano DeFi by addressing critical issues in liquidity management and stable asset stability. It not only enhances the functionality and attractiveness of existing protocols but also opens doors for new possibilities in decentralized finance on Cardano. The ripple effects of these improvements will be felt across the entire ecosystem, from individual users to large-scale DeFi applications, solidifying Cardano's position as a leading blockchain for sophisticated financial operations.