# Indigo Protocol

> Indigo Protocol is a decentralized synthetic asset protocol on Cardano. It lets
> users mint and trade iAssets — on-chain synthetic tokens that track the price of
> real-world assets such as USD, BTC and ETH — without holding the underlying asset
> and without a centralized custodian or intermediary.

Indigo is community-led and governed by the Indigo DAO through the INDY governance
token. The protocol is non-custodial: users retain control of their funds at all
times, and all core logic runs in Plutus smart contracts on the Cardano blockchain.

This file follows the llms.txt convention (https://llmstxt.org) to give AI agents a
clean, structured entry point to Indigo Protocol.

## Protocol versions

Indigo Protocol V3 is the current version and is the authoritative description of
how the protocol works today. Material published before V3 — including the PDF
whitepaper listed below — describes earlier mechanics that V3 has changed.

- [Indigo Protocol V3](https://docs.indigoprotocol.io/readme/indigo-protocol-v3): The current version. Expands collateral beyond ADA to Cardano Native Tokens, adds the Peg Stabilization Module and the Indigo OrderBook, migrates price feeds to Pyth, settles interest in iAssets rather than ADA, and moves the protocol toward zero INDY emissions.
- [Indigo Protocol V2](https://docs.indigoprotocol.io/readme/indigo-protocol-v2): The previous version. Introduced the Maintenance Ratio, the Redemption Margin Ratio, interest on loans, and the current protocol fee structure.

## Core concepts

- [iAssets (synthetic assets)](https://docs.indigoprotocol.io/readme/iassets): Cardano-native synthetic tokens that track the price of an external asset — iUSD, iBTC and iETH, with further iAssets such as iJPY and iEUR added through DAO governance. Prices come from oracles (migrated to Pyth in V3) rather than from bridging or wrapping, so no cross-chain deposit is involved. iAssets trade freely as native Cardano tokens.
- [Loans / CDPs](https://docs.indigoprotocol.io/readme/collateral-debt-position-cdp): A Collateralized Debt Position is the primary way iAssets are created. A user deposits collateral and mints iAssets against it, keeping the position above a minimum collateral ratio. Since V3, loans can be backed by whitelisted Cardano Native Tokens (for example USDCx or NIGHT) as well as ADA. Each position is single-collateral-type from creation to closure, and each iAsset/collateral pair has its own Liquidation Ratio, Maintenance Ratio, Redemption Ratio, price oracle and interest rate oracle. Indigo's newer interfaces refer to CDPs as "Loans".
- [Peg Stabilization Module (PSM)](https://docs.indigoprotocol.io/readme/indigo-protocol-v3): A 1:1, slippage-free swap between an iAsset and an approved paired asset of stable relative value — for example USDCx to iUSD, or iUSD back to USDCx subject to available liquidity. The DAO controls each pair and can enable or disable either direction independently.
- [Indigo OrderBook](https://docs.indigoprotocol.io/readme/indigo-protocol-v3): A bi-directional on-chain order book for trading between iAssets and collateral assets at configured limit prices, added in V3. It also supplies redemption capacity alongside direct loan redemptions.
- [Stability Pools](https://docs.indigoprotocol.io/readme/stability-pools-and-liquidations): Users deposit iAssets into a pool that absorbs the debt of liquidated loans, keeping every minted iAsset overcollateralized. Depositors give up a pro-rata share of their deposit and receive a pro-rata share of the liquidated collateral. Since V3 those payouts are multi-asset — depositors receive the collateral type backing the liquidated loan, ADA or a CNT, not only ADA.
- [Interest](https://docs.indigoprotocol.io/readme/interest): Interest accrues continuously on every loan. Since V3 it is minted as new iAssets and added to the borrower's debt rather than paid in ADA, and the rate is set algorithmically per collateral and iAsset pair. Interest revenue is distributed to Stability Pool depositors, liquidity providers and the DAO Treasury.
- [Redemptions](https://docs.indigoprotocol.io/readme/redemptions): Users can exchange iAssets for loan collateral when a position falls below the Redemption Margin Ratio, providing the arbitrage that holds iAsset pegs. V3 adds redemption capacity through the OrderBook and the PSM.
- [Liquidations](https://docs.indigoprotocol.io/readme/liquidations): Undercollateralized loans are frozen and then liquidated, with the debt settled by burning iAssets from the corresponding Stability Pool and the collateral distributed to depositors.
- [INDY staking and governance](https://docs.indigoprotocol.io/readme/governance-and-indy-staking): INDY is the governance token. Staking it grants voting power over DAO proposals and earns rewards and a share of protocol fees. Total supply is capped at 25,000,000 under V3, reduced from 35,000,000.
- [Indigo DAO](https://indigoprotocol.io/#indigo-dao): Protocol parameters, collateral listings, PSM pairs, treasury spending and upgrades are all decided by INDY holders through on-chain governance proposals.

## AI agents and MCP

Indigo publishes an official MCP (Model Context Protocol) server so AI agents can
interact with the protocol directly — reading prices and protocol state, and
managing Loans, Stability Pool positions, staking, and governance.

- [Indigo Agents Portal](https://agents.indigoprotocol.io): Entry point for agent developers — tools, skills, prompts, and setup docs for connecting an MCP-compatible client to Indigo.
- [Agent setup docs](https://agents.indigoprotocol.io/#setup): How to connect Claude, Cursor, and other MCP clients to Indigo Protocol.
- MCP server package: run `npx @indigo-protocol/indigo-mcp` to start the server. It is open source and works with any MCP-compatible client.

Representative agent capabilities: monitoring Loan health ratios and liquidation
risk, comparing Stability Pool APRs across iAssets, tracking TVL and protocol
statistics, scanning for liquidation opportunities, and following governance
proposals.

## Products and apps

- [Indigo Web App](https://app.indigoprotocol.io): The main interface for the protocol. From here users mint iAssets against ADA or CNT collateral, manage Loans (CDPs), deposit into Stability Pools, swap through the PSM, trade on the Indigo OrderBook, and stake INDY for governance power, rewards, and protocol fee sharing.
- [Dexter](https://github.com/IndigoProtocol/dexter): Open-source TypeScript library by Indigo Labs for interacting with Cardano DEXs — building swaps, fetching liquidity pools, and routing across decentralized exchanges.

## Documentation

- [Indigo Docs](https://docs.indigoprotocol.io/): Full protocol documentation.
- [CDP guide](https://docs.indigoprotocol.io/guides/cdp): Step-by-step guide to opening and managing a Collateralized Debt Position.
- [Stability Pools guide](https://docs.indigoprotocol.io/guides/stability-pools): Step-by-step guide to depositing into and withdrawing from Stability Pools.
- [Whitepaper (PDF)](https://indigoprotocol.io/paper.pdf): The original Indigo Protocol whitepaper. It describes Protocol V2 and has not been updated for V2.1 or V3 — treat the V3 documentation above as the current source for how the protocol works.
- [Innovation proposal (PDF)](https://indigoprotocol.io/indigo-innovation-proposal.pdf): Indigo innovation proposal document.

## Community and governance

- [Governance forum](https://forum.indigoprotocol.io/): Where proposals are discussed before going on-chain.
- [Discord](https://discord.com/invite/gVqDRNg7VH): Community chat and support.
- [X / Twitter](https://twitter.com/indigo_protocol): Announcements and updates.
- [YouTube](https://www.youtube.com/channel/UCZtghAMaSza6v6d1ie9ACIg): Explainers and community calls.
- [GitHub](https://github.com/IndigoProtocol): Open-source repositories.
- [Indigo Foundation](https://indigo-foundation.org/): The foundation supporting the protocol's development and ecosystem.

## Optional

- [Privacy Policy](https://indigoprotocol.io/privacy-policy.html): How Indigo handles data.
- [Disclaimer](https://indigoprotocol.io/disclaimer.html): Legal disclaimer and risk notice. Indigo is experimental DeFi software; nothing on this site is financial advice.