Summary
The objective of this proposal is to list the following LP tokens as collateral on the Neutron outpost of the Red Bank:
- dATOM/USDC
- dTIA/USDC
- dATOM/NTRN
- dTIA/NTRN
- NTRN/USDC
where dTIA and dATOM (referred to as dTokens) are liquid staking derivatives for TIA and ATOM, respectively, provided by Drop protocol.
Motivation
Following the Drop launch on Neutron, all pools that contain dTokens will be incentivized by Drop protocol, NTRN/USDC pool will be incentivized by Neutron.
We believe that there will be a demand to use those LP tokens as collateral within the Red Bank to leverage farm points and leverage yields. Hence, this listing has the potential to increase activity within the Red Bank on Neutron.
Risks
Technical and Centralization Risks:
Technical and Centralization Risks associated with dTokens and NRTN are explored in governance proposals [MRC-105] and [MRC-36].
All assets meet at least the minimum requirements suggested by the Mars risk framework.
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.
Pricing LP tokens:
To determine the fair price of the LP tokens for Astroport PCL pool, the Mars Protocol oracle deploys the following fair LP token pricing implementation:
This implementation achieves the following:
- The price of the LP tokens is resistant to manipulation and flash loan attacks, because irrespectively of the current pool reserves, the LP token price is always calculated at the equilibrium point.
- The LP token price is calculated in a conservative manner because the pool’s TVL reaches minimum at the equilibrium point.
- When the oracle price is around the price scale, the LP token price is always conservative. When the oracle price deviates from the price scale, the real pool TVL may be slightly lower than the model one.
For the above reasons, we believe that the proposed implementation for pricing LP tokens for Astroport PCL pools is robust.
Risk Parameters Suggestion
To apply the Risk Framework to determine the LTV for LP tokens, we calculate the average (or the minimum for new tokens) liquidation LTV for the underlying assets, adjust for impermanent loss risk, and finally calculate the max LTV by adjusting the liquidation LTV by the average safety margins of the underlying assets.
Following the methodology suggested by the Mars Risk Framework, we propose the following parameters:
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.