Indigo - Cardano's Synthetic Assets Protocol

Indigo - a(DeFi) protocol -  focuses on synthetic assets. It allows users to create, trade, and manage synthetic assets that mirror the value of real-world assets (RWAs). As a project built on the Cardano blockchain, Indigo harnesses benefits such as security, scalability, and decentralisation to give users an opportunity to breakaway from traditional methods of managing and trading assets.

What are Synthetic Assets?

Synthetic assets are tokenised versions of real-world assets that track the value of those assets using permissionless mechanisms. These assets allow users to gain exposure to basic assets without the need to physically hold or own it. 

To make it clearer, imagine you have a synthetic asset that mirrors the price of gold, you can trade or hold an asset that has the same value as gold without having to buy real gold. Indigo’s synthetic assets are called iAssets. They're created through smart contracts and they give traders access to a variety of assets, even the ones that aren't common in cryptocurrency such as Gold or Oil.

How Does Indigo Work?

On Indigo, users mint synthetic assets by locking collateral in the form of ADA or other supported assets. Once the collateral is locked, users receive a proportionate amount of iAssets, which mirror the value of the real asset. To prevent liquidation, the collateralization ratio has to be maintained in order to ensure that there is sufficient backing for the synthetic asset.  If the value of the collateral drops below a specific limit, the position may be liquidated to make sure the protocol remains solvent. This ensures that iAssets are always backed by sufficient collateral.

Minted iAssets can be traded on Indigo's DEX or on other similar platforms built on the Cardano blockchain.This makes it easier for users to trade synthetic assets in a transparent manner. Also, raders can make speculations about the price changes of various assets without the need for intermediaries, traditional brokers, or centralized exchanges.

When a user wants to liquidate their iAssets, they can redeem their synthetic assets by returning them to the protocol in exchange for their collateral. This process ensures that users can always exchange their iAssets back for the value they represent, ensuring the trust of the users in the system.

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Benefits of Indigo’s Synthetic Assets Protocol

One of the main advantages of Indigo for users is decentralisation. As a permissionless protocol, it operates without a central authority, ensuring users have total control over their assets and transactions. This system reduces the need to rely on central authorities or organizations to operate.

Another major point of attraction is that Indigo allows users to gain exposure to a variety of assets that may not have been easy to access normally. Traditional financial markets can be restrictive, particularly for people in regions with limited access to certain asset classes. With Indigo, anyone, anywhere with an internet connection and ADA tokens can mint and trade synthetic assets without the need to worry about their geographic location.

Indigo provides liquidity for synthetic assets through decentralised exchanges. This creates a thriving market for iAssets, giving traders the ability to buy, sell, and exchange assets without needing a centralized marketplace.

When users mint synthetic assets, they gain leveraged exposure to various assets without holding the real asset.  For instance, if you want to gain exposure to the price of Tesla stock, you can mint an iAsset that tracks Tesla’s stock price. This allows you to benefit from price changes without actually buying the stock. This serves as a big opportunity for traders who want to make profit on their capital and take advantage of price changes.

With Indigo, users can diversify their portfolios by trading and managing different kinds of assets. Outside of trading cryptocurrencies, users can buy synthetic assets that mirror the value of stocks, commodities, and other traditional financial assets within the Cardano ecosystem.

Conclusion

Indigo’s synthetic assets protocol is an evidence of the advancements that have occurred in decentralized finance. By bringing the benefits of synthetic assets to the Cardano ecosystem and its focus on decentralization, accessibility, and security, Indigo has presented itself as a powerful tool which users can use to gain exposure to a number of assets in a transparent and less restrictive way.