Summary
The objective of this proposal is to increase the cap of the following asset on the Neutron outpost as follows:
- ATOM from 150,000 to 250,000 ATOM
Motivation
By increasing the lending caps for ATOM, Mars Protocol can unlock greater liquidity and enable better borrowing rates within the AEZ (Atom Economic Zone).
Historically, high staking rewards have discouraged ATOM holders from participating in credit protocols, leading to shallow supply and, consequently, high and volatile borrowing rates. This has limited the scale at which DeFi strategies, such as leveraged staking and delta-neutral hedging, can be effectively deployed, thereby stifling the growth of ATOM-based DeFi products and liquid staking tokens.
By increasing the ATOM lending caps, Mars Protocol aims to address these issues by providing sufficient liquidity to lower borrowing rates. This will make it more attractive for users to borrow ATOM, which in turn will stimulate the development and adoption of various DeFi products, such as leveraged staking vaults, single-sided LP vaults, and automated hedging strategies. These products will not only enhance the utility and demand for ATOM but also bolster the entire Cosmos ecosystem by facilitating more complex and profitable DeFi strategies.
Increased ATOM lending capacity on Mars Protocol will also support the broader adoption of ATOM liquid staking tokens by making them more attractive for leveraging and yield-maximizing strategies. As a result, this proposal is expected to create a virtuous cycle of increased liquidity, reduced borrowing costs, and greater participation in the Cosmos DeFi ecosystem, thereby strengthening the position of ATOM within the broader DeFi landscape.
Moreover, this move aligns with the strategic objectives of increasing ATOM’s utility beyond staking by integrating it more deeply into DeFi activities, similar to the role ETH plays in the Ethereum ecosystem. This will help drive the AEZ’s evolution into a more competitive and vibrant DeFi hub, with ATOM at its core.
Risks
The deposit caps serve two main purposes:
- They limit the exposure to any single token. This is important to mitigate idiosyncratic risks specific to any particular token and to mitigate liquidity risk, which may impede proper functioning of the liquidations system and could ultimately lead to bad debt.
- They mitigate looping attacks in which attackers are able to generate artificially large positions of certain tokens with the purpose of subsequently manipulating their price and effectively stealing assets from the protocol.
As the caps increase, so do the risks explored above. At the end of the day, a right level of the caps should strike the right balance between risk aversion and protocol usefulness. In this sense, we believe that while the proposed caps do increase risk for the protocol, it is still conservative given the liquidity levels of the assets.
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 Neutron/NTRN, 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. 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.