[MRC 10] Red Bank deposit caps increase 1

[delphilabs]

Summary

This proposal aims to increase the Red Bank OSMO, ATOM, and axlUSDC deposit caps to 10.0M, 350k, and 1.5M respectively.

Abstract

Proposal to increase the Red Bank deposit caps for OSMO, ATOM, and axlUSDC to 10.0M, 350k, and 1.5M respectively. This proposal outlines the underlying motivations and the risks considered that are associated with this action.

Motivation

Mars Hub and Red Bank have now been launched, initial deposit caps have been hit and the infrastructure deployed is working as intended. As such it is time to increase the deposit caps on Red Bank.

Specification

We propose the following increases from the current deposit caps for all three assets listed on Red Bank.

	Current Deposit Caps on Redbank	Proposed Caps on Redbank
OSMO	2.5M	10M
ATOM	100k	350k
axlUSDC	500k	1.5M

Risks

The dominant risk associated with this action is that an increase in the caps for a given asset can result in an overexposure to said asset. Capping exposure allows Mars to reduce risk associated with asset price manipulation, extreme price volatility, and abnormally high swapping fees (lack of liquidity), among others. These issues could be detrimental to Red Bank in terms of insolvencies and liquidations.

Implementation

This proposal is considered to be “signaling intent” upon successfully being passed, and will require off-chain infrastructure and human resources to implement.

In the event this proposal passes, the Builder Multisig on the Osmosis chain which is the current owner of the smart contracts deployed, will be utilised. This multisig will dispatch the appropriate smart contract messages that set the new deposit caps at Red Bank such that they are consistent with this proposal.

Disclaimers/Disclosures

This proposal is being made by Delphi Labs Ltd., a British Virgin Islands limited company. Delphi Labs engages in incubation, investment, research and development relevant to multiple ecosystems and protocols, including the Mars Protocol. Delphi Labs and certain of its service providers and equity holders own MARS tokens and have financial interests related to this proposal. Additionally, Delphi Labs is one of several entities associated with one another under the “Delphi Digital” brand. Delphi Digital’s associated entities and/or equityholders or service providers of such entities may hold MARS and may have financial interests related to this proposal. All such entities, service providers, equity holders and other related persons may also have financial interests in complementary or competing projects or ecosystems, entities or tokens, including Osmosis/OSMO. These statements are intended to disclose relevant facts and to help identify potential conflicts of interest, and should not be misconstrued as a complete description of all relevant interests or conflicts of interests; nor should they be construed as a recommendation to purchase or acquire any token or security.

This proposal is also subject to and qualified by the Mars Disclaimers/Disclosures. Delphi Labs may lack access to all relevant facts or may have failed to give appropriate weighting to available facts. Delphi Labs is not making any representation, warranty or guarantee regarding the accuracy or completeness of the statements herein, and Delphi Labs shall have no liability in the event of losses or damages ensuing from approval or rejection or other handling of the proposal. Each user and voter should undertake their own research and make their own independent interpretation and analysis of all relevant facts and issues to arrive at their own personal determinations of how to vote on the proposal.

[polkachu]

Let’s raise the cap. R A I S E T H E C A P

[speggos]

Sounds good! Raise the caps - if we’re happy with the risk portfolio on these assets, raising it the cap should be great. More revenue!

[nope]

Keep the caps, Mars is an experimental technology. Seems risky to immediately raise the caps without any kind of stress test. Bad debt is way worse than people missing incentives.

Higher caps, mean also higher capital at risk.

[RunningCut]

There were a lot of people that got left out. Now there sitting there staring at the platform and cant use it. Is there a way to cap deposits per wallet? Say 1k per wallet for the first 24 hrs. then open it up. or limit the deposit to 1k per asset class per day for the first 30 days period. and/or add more assets.

[redphone]

Good thought. Too easy to sybil attack, though (one whale with programming skills could make hundreds or thousands of wallets and hit the caps themselves)

[RunningCut]

Good point. could get creative if devs are up for it. aka if you hold one of the mars NFT’s you get up to 1k deposit per class, if you hold 2 you get 2k, etc
or
If you borrowed you can deposit more… Heard some comments that some are just depositing to farm the mars token.

[PFC]

I personally would like to see mars “burnt in” for a bit before we start increasing the caps by 3-5x.

I’d like to see it handle a dip, and have a few liquidations go through to make sure the mechanisms are all working right before we open the flood gates.

[Fomocraft]

#RAISETHECAPS

Given the history of the Mars Protocol, it’s important to begin building up protocol owned assets. Since the Terra collapse led to the loss of its billion dollar Treasury from the initial lockdrop, special care must be given to ensure that each precious MARS token is distributed in exchange for maximum value to the protocol.

Although we have contributed collateral to the Red Bank on Osmosis, and are certainly pleased with the ~200% APR we are currently mining, as long term investors in the Mars Protocol, we want to see MORE PROTOCOL PROFITS PER EMITTED VALUE IN MARS TOKENS.

As we saw with the Avi Eisenberg alleged manipulation of CRV on the Aave platform earlier this year, lending platforms MUST have robust backstop treasury to account for the myriad potential issues that can occur due to the inherent volatility of cryptoasset prices.

The best way to achieve that treasury backstop is to EARN IT via the spread between lend and borrow rates. While MARS price is healthy and its Osmosis liquidity is thick, we should be looking to encourage more collateral lending and borrowing on the platform (even if it is just essentially MARS farming), because that will significantly increase the protocol earnings via the interest spread mechanism.

Therefore, #RAISETHECAPS (and do it fast…)

[Regi]

Also there is a lot of awareness about Mars right now, this won’t last we need to get users in and using the platform.

The sold out appeal Mars has right now on Osmosis can soon turn to boring and forgotten in the eyes of potential new users.

[Azmo1338]

Absolutely right! We need to incease users, TVL and therefore revenue as fast as possible.
Also the leveraged LPs should be live asap, this was the absolute killer-feature back in “the old days”

[Bitcoin_Sage]

Agreed. Would be good to see how the system performs during some downside volatility.

[meso]

AxlUSDC is exceptionally small compared to other pools. I think it would be better to increase the full size of the axlUSDC . Because the cap of axlUSDC was the first to fill up.

[larry]

The current situation that users who managed to make their deposits before the cap was reached are sitting comfortably at 100+% yield, while users who did not make it can only watch, is highly undesirable.

On the other hand, the opinion that the protocol should be more battle-tested before raising the cap is also totally reasonable.

I think we definitely should raise the cap, but not too aggressively.

[wevie]

Totally. Would be interesting to see what percentage of people just borrowed same asset that deposited. User activity might be interesting in deciding cap limits.

[markwatney]

Also agree to some extent, however I feel like by the time the due process has been followed for a proposal we would have seen some action.

Another thing to consider is that a significant amounts of the deposits are not exposed to any liquidation risk - they are just looping to farm incentives (i.e atom → atom)

[Fluffy_trex]

The counter argument to raising the caps is “battle testing” but given the current state of emissions for the first month, there will be no battle testing. This is because people deposited, and looped borrows on the same asset. This gives you no risk of liquidation and farms of 300+%. Using this mechanic, you won’t get liquidated even if your asses drops 50% and the protocol won’t be “battle tested”.

This deposit farm is basically a free airdrop for people that have been following mars, yet many, even those who followed closely, were left out. In order to boost morale for those people and generate more revenue for the protocol, I suggest raising the caps to allow more individual users to participate in this deposit farm/utilize borrowing. This could be done by capping deposits at $5k for now, and the requirement to have at least one of the badges (since they are on stargaze idk if that’s possible to verify automatically). A more contentious option would be to open deposits only to airdrop receivers for 12 hours, then open to all.

I think this is in the best interest of mars as a protocol because I see this deposit farm as a way to disperse hundreds of thousands of mars tokens to generate an initial protocol user base of supporters and spark activity & interest.

The current design is a farm and dump for a small number of whales that squeezed out and jaded many long term supporters of the project.

[gonluzengin]

Although there are risks, I think this idea will take the Mars Protocol to a higher level. For this reason, after trying to minimize various risks, I do not see any obstacles in the realization of the idea.

[Fomocraft]

Can you please tell us when to expect downward volatility? That way we can hedge our other positions.

Since this is something we cannot know, the only thing to consider is what is best for the protocol. And to us, that is ALWAYS to build treasury. While the subsidy rates are mega high, this is even more of an imperative.

[Fomocraft]

Agree. Would even suggest to increase axlUSDC limit from 1.5m to 2m or even 2.5m… Stables are the lifeblood of a lending protocol, as most users don’t want to take a defacto short position on volatile cryptoassets.