One of our days in Otavalo was a day trip to Cuicocha, a caldera outside the smaller surrounding city of Catacachi. A caldera is just a large crater that forms when the land at the center of a volcano collapses. In this case it created a lake and two islands in the middle. We hiked 4.3 miles (2.15 miles out and back) around the ridge of the volcano. Thanks to Jordan's Garmin watch we know that we hiked up 971 feet to a total elevation of 11,059ft. I'd certainly recommend this for anyone in the area, it was fantastically beautiful.
We left ourselves 6 hours to do the hike which ended up not being quite long enough to go entirely around the rim, but that was fine as by the time we were back we were both exhausted.
For anyone that might be wanting to visit Cuicocha, you can get there from Otavalo by just heading to the bus terminal. Catch the next bus to Catacachi, it should be $0.25 each direction per person. Then catch a cab from Catacachi to Cuicocha which should be $5 each direction. It is recommend to arrange a pick up time with your driver as there aren't any taxis at the lake.
Once there you can take a boat to the center island and view some of the local wildlife (we didn't do this), you can't actually get on the islands as they're protected. Or you can do what we did and hike around the caldera. The entrance to the trail is just by the entrance of the whole park.