Summary
This proposal increases the Red Bank axlUSDC deposit cap to 3,000,000.
Motivation
axlUSDC is a crucial liquidity source for the Red Bank, and represents ~$1.2M in borrowing demand. Raising the cap on axlUSDC will let natural liquidity begin to fill the immense demand to borrow stablecoins. It’s important to note that all DeFi lending platforms are competing for liquidity, and if better rates for borrowing arise on other platforms precious liquidity will leave the Red Bank. If the Red Bank wishes to be competitive with platforms like Kava, it will need to offer lower rates on stablecoin borrowing.
Specification
I propose the following increase from the current deposit cap for axlUSDC.
| Current Deposit Cap on Redbank | Proposed Cap on Redbank | |
|---|---|---|
| axlUSDC | 1,500,000 | 3,000,000 |
Risks
The dominant risk associated with this proposal is that increasing the cap for axlUSDC increases Mars’ exposure to that token. 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. As a token’s cap is increased, so too are these issues. And these issues could be detrimental to Mars in terms of insolvencies and liquidations.
Implementation
This is a signaling proposal, not an executable proposal.
The Mars smart contracts on the Osmosis chain are currently controlled by the Builder Multisig address. If this proposal passes, the builders will utilize their multisig to make the necessary parameter change.