Summary
This proposal covers the addition of ApolloDAO’s stATOM-ATOM 14d vault tokens as a collateral asset in Mars Farm.
Motivation
Integrating Apollo’s stATOM/ATOM 14d vault tokens as collateral in Mars Farm would be advantageous, as it could yield high returns with leverage while maintaining a relatively low liquidation risk. This is mainly attributed to the strong correlation between the collateral stATOM/ATOM LP token and the borrowable asset ATOM, which results in lower liquidation risks compared to other (less correlated) collateral and debt assets. Additionally, the listing will stimulate organic demand for ATOM borrowing through Red Bank.
Since Mars Farm’s launch, ApolloDAO’s vaults have attracted nearly $500k in collateral and generated over $250k in borrowings from the Red Bank. Users have leveraged their positions by an average of 2.07x. Liquidations have involved 22 positions, with $8.4k collateral seized and $7.6k in debt repaid. Even in light of the recent volatility, these modest liquidations figures indicate the conservatism and stability of the existing implementation.
Risks
As a Peer-to-Pool money market, Mars Farm faces increased risk with each new asset introduced. To mitigate potential systemic risks that could significantly impact the entire protocol, the Martian Council must judiciously balance new asset additions against assumed risks. We firmly believe such decisions should be made cautiously.
However, the stATOM/ATOM 14d vault presents a compelling case for incorporation into Mars Farm, based on the following considerations:
- Technical and Centralization Risks: The stATOM/ATOM 14d vault met most of the minimum technical and centralization risk requirements outlined in the Risk Framework. The only requirement not met is having an active bug bounty program.
- Oracle Risk: Mars Farm employs a fair LP token pricing mechanism for Apollo stATOM/ATOM 14d vault shares, in conjunction with the proposed LTV for the asset, ensuring adequate security guarantees for the price feed.
- Market Risk and Parameters: The proposed LTV, deposit cap, and other risk parameters utilize the Risk Framework parameters of the underlying assets and also address the impermanent loss risk of the LP tokens.
- Organic Demand: As previously noted, the inclusion of this asset is expected to drive organic demand for leveraged yield farming on Mars Farm and Red Bank.
Technical Risk
| Metric | Requirements | ApolloDAO |
|---|---|---|
| Time Since Launch | Minimum | ApolloDAO has operated vaults on Cosmos since 2021. The latest iteration of vaults have been live on Osmosis since February 27, 2023. |
| Custom Public Audit | Minimum | ApolloDAO was recently audited by Oak Security. |
| Recent Audit | Ideal | All of the above audits have occurred within the last 12 months. |
| No Critical Vulnerabilities | Ideal | No critical vulnerabilities have been exploited. |
| Bug Bounty Program | Not Met | ApolloDAO currently does not have a bug bounty program. |
Centralization Risk
| Metric | Requirements | ApolloDAO |
|---|---|---|
| Owner Decentralization | Minimum | The dev multisig is controlled by a 4 of 6 multisig consisting of 6 ApolloDAO contributors. This dev multisig is able to adjust the performance fees, the fee collector address, whitelist force withdrawal liquidation addresses, and modify helper contracts for auto compounding. |
| Admin Decentralization | Minimum | The ApolloDAO vaults on Osmosis are controlled by a 4 of 6 multisig. Three of the holders are ApolloDAO contributors and the remaining holders are reputable individuals from Osmosis, Stride, and the Injective communities. This admin can upgrade/migrate the smart contracts, change the admin to an external address, and can remove the admin to make the contract immutable. |
| Other permissioned addresses | Ideal | No other permissioned addresses. |
Market Risk
To apply the Risk Framework to determine the LTV of stATOM/ATOM 14d vault, we calculate the average 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.
stATOM Liquidation Loan-to-Value: 55%
ATOM Liquidation Loan-to-Value: 70%
stATOM Safety Margin: 0.5%
ATOM Safety Margin: 2%
Impermanent Loss Adjustment: 0.02%
Based on these quantitative metrics, in the next section we propose the LTV and other associated risk parameters.
Risk Parameters Suggestion
Max Loan-to-Value: 61%
Liquidation Loan-to-Value: 62.5%
Max Leverage: 2.67x
Liquidation Bonus: 15%
Deposit Cap: 150,000 axlUSDC
Usable as collateral? Yes
Oracle Risk
To determine the fair price of the LP collateral in the ApolloDAO vaults, the Mars Protocol oracles deploys the following fair LP token pricing implementation:
LP_price = 2 * sqrt(r_0 * r_1) * sqrt(p_0 * p_1) / LP_total_supply
where r_i is the pool’s balance and p_i is the TWAP price of the asset.
By combining the fair token TWAP price with fair asset reserves, the price of the LP tokens are resistant to manipulation and flash loan attacks. Additional details can be found in Alpha Finance’s implementation here.
Implementation
This is a signaling proposal. If passed, the Mars Builders Multisig will execute the following actions at the Osmosis Outpost:
- Update the Credit Manager vault configs to add the stATOM-ATOM vault alongside other whitelist vaults from ApolloDAO using the following vault config:
[
{
"vault": {
"address": "osmo1g3kmqpp8608szfp0pdag3r6z85npph7wmccat8lgl3mp407kv73qlj7qwp"
},
"config": {
"deposit_cap": {
"denom": "ibc/D189335C6E4A68B513C10AB227BF1C1D38C746766278BA3EEB4FB14124F1D858",
"amount": "2000000000000"
},
"max_ltv": "0.63",
"liquidation_threshold": "0.65",
"whitelisted": true
}
},
{
"vault": {
"address": "osmo1jfmwayj8jqp9tfy4v4eks5c2jpnqdumn8x8xvfllng0wfes770qqp7jl4j"
},
"config": {
"deposit_cap": {
"denom": "ibc/D189335C6E4A68B513C10AB227BF1C1D38C746766278BA3EEB4FB14124F1D858",
"amount": "750000000000"
},
"max_ltv": "0.65",
"liquidation_threshold": "0.66",
"whitelisted": true
}
},
{
"vault": {
"address": "osmo1a6tcf60pyz8qq2n532dzcs7s7sj8klcmra04tvaqympzcvxqg9esn7xz7l"
},
"config": {
"deposit_cap": {
"denom": "ibc/D189335C6E4A68B513C10AB227BF1C1D38C746766278BA3EEB4FB14124F1D858",
"amount": "150000000000"
},
"max_ltv": "0.61",
"liquidation_threshold": "0.625",
"whitelisted": true
}
}
]
Copyright
Copyright and related rights waived via CC0.
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.