Summary
The objective of this proposal is to list the following assets as collateral on the Neutron outpost:
- dTIA
- dATOM
where dTIA and dATOM (referred to as dTokens) are liquid staking derivatives for TIA and ATOM, respectively, provided by Drop protocol.
Motivation
Drop is a cross-chain liquid staking protocol built as an Integrated Application on the Neutron network, it is a member of Lido Alliance.
dTIA and dATOM are liquid staking derivatives for TIA and ATOM, respectively, provided by Drop protocol. This allows users to effectively use a representation of TIA and ATOM across DeFi without sacrificing the staking yield.
We think these are really good assets to be used as collateral, as users would be able to use them within the Red Bank without sacrificing the staking yield. As such, we think they could generate considerable organic demand for the Mars Outpost on Neutron.
Furthermore, this listing would allow users of the Red Bank on Neutron to leverage stake TIA and ATOM, a popular strategy that gained significant traction. This further strengthens our conviction that this listing has the potential to increase activity within the Red Bank on Neutron.
Risks
In the sections below we’ll explore the risks associated with listing dTokens and the proposed risk parameters for the listing.
Technical Risk
In terms of technical risk, the asset meets the minimum requirements suggested by the Mars risk framework:
Centralization Risk:
In terms of centralization risk, the asset meets the minimum requirements suggested by the Mars risk framework:
| Metric | Requirements | Comments |
|---|---|---|
| Owner Decentralization | Ideal | For the beginning, protocol ownership will be managed by the Neutron Subdao, which is effectively a multisig that is restricted to execute proposals unless they’re timelocked for 3 days during which they can be overruled (vetoed) by the Neutron DAO. It’s done to prevent the multisig misbehave without limiting it in execution. |
| Admin Decentralization | Ideal | See above |
| Other permissioned address | Ideal | Protocol operates permissionlesly besides two cases: 1. Neutron Subdao described above is able to pause the execution of different parts of the protocol with no timelock 2. There’s a rare corner case in a protocol behavior: if protocol wasn’t properly managed for ~6 days and slashing happened during this period, and this slashing impacted undelegations processed on behalf of protocol’s ICA, multisig will be involved to sort out batched undelegation request. |
Oracle Risk
Pricing dTokens:
We propose the use of a custom oracle for dTokens that incorporates both the Drop redemption rate (RR) as well as dToken’s market price as follows:
dToken/USD = min(dToken /Token TWAP, dToken /Token RR) * Token/USD
where:
- dToken /Token TWAP is the 30-minute arithmetic mean TWAP from the dToken /Token Astroport PCL pool on Neutron.
- dToken /Token RR is the redemption rate of dToken according to the Drop contract deployed on Neutron.
- Token/USD is the Pyth provided feed, used to normalize the price to USD.
This implementation achieves the following:
- It is robust to upwards price manipulation attempts since the price will always have a ceiling that is determined by the redemption rate. As such, even if the TWAP is manipulated, an attacker is not going to be able to reflect that into the price Mars uses.
- While downward price manipulation can still happen, it is mitigated by two factors. First, by using an arithmetic mean TWAP, which is more robust to downwards price manipulation attacks than a geometric mean TWAP. Second, given that dTokens won’t be borrowable, the scope of possible downwards price manipulation exploits are reduced to attacks that artificially decrease the price to make a certain position liquidatable. While this can happen, we believe it’s unlikely because: 1) the potential profits are lower than a pure price manipulation attack to steal assets (especially with Mars’s new auction-based liquidation mechanism); and 2) the risk is higher given that the attacker cannot guarantee that he’ll be the one performing the liquidation.
- It allows Drop to aggregate liquidity in more efficient pool types (PCL instead of XYK) where TWAP-based oracles by themselves (without the redemption rate) would not be robust.
For the above reasons, we believe the proposed oracle implementation for dTokens is robust.
Risk Parameters Suggestion
Following the methodology suggested by the Mars Risk Framework, we propose the following parameters:
| Parameter | dTIA | dATOM |
|---|---|---|
| Max. LTV | 44% | 62% |
| Liquidation LTV | 45% | 65% |
| Deposit Cap | 50,000 dTIA | 50,000 dATOM |
| Liquidation Parameters | ||
| Starting LB | 0 | 0 |
| Slope | 1 | 1 |
| Max. LB | 0.2 | 0.2 |
| Min. LB | 0.05 | 0.05 |
| Target Health Factor | 1.05 | 1.05 |
| Protocol Liquidation Fee | 0.25 | 0.25 |
| Reserve Factor | 10% | 10% |
| Usable as collateral? | Yes | Yes |
| Available to borrow? | No | No |
Implementation
This is a signaling proposal, not an executable proposal.
The Mars smart contracts on the Neutron chain are currently controlled by the Builder Multisig address. If this proposal passes, the builders will utilize their multisig to make the necessary parameter changes.
Copyright
Copyright and related rights waived via CC0.
Disclaimers/Disclosures
This proposal is being made by Mars Protocol Foundation, a Cayman Islands foundation company. Mars Protocol Foundation engages in research and development of the Mars Protocol. Mars Protocol Foundation and certain of its service providers and managers own MARS tokens and have financial interests related to this proposal. The aforementioned persons or their affiliates may also have financial interests in complementary or competing projects or ecosystems, entities or tokens, including NTRN, dTIA, TIA, dATOM, and ATOM. 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. Mars Protocol Foundation may lack access to all relevant facts or may have failed to give appropriate weighting to available facts. Mars Protocol Foundation is not making any representation, warranty or guarantee regarding the accuracy or completeness of the statements herein, and Mars Protocol Foundation 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.