Summary
This proposal aims to increase the deposit cap for ATOM on the Red Bank from 350,000 ATOM to 700,000 ATOM. This increase will raise the aggregated ATOM exposure on Mars (including both Red Bank deposits cap and Farm vault cap) to around ~20% of ATOM’s on-chain liquidity.
Motivation
The recent stATOM/ATOM vault cap increase showed how this vault generates organic ATOM borrow demand from the Red Bank.
As such, the recent proposal to further increase this cap will likely lead to more ATOM borrow demand. Additionally, the recent proposal to increase the stATOM cap on the Red Bank will go into effect soon, which can also have a positive effect on ATOM borrow demand.
In this sense, this proposal is intended to anticipate these demand increases and guarantee that the Red Bank can meet the additional demand without unnecessarily constraining usage.
Risks
As mentioned in previous proposals, the Red Bank deposit caps serve 2 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 may 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.
Obviously, as the caps increase, so do the risks explored above. At the end of the day, a correct level of the caps should strike the right balance between risk aversion and protocol usefulness. In this sense, we think while the proposed cap does increase risk for the protocol, it is far from representing an unmanageable risk, while at the same time will help the protocol operate more smoothly in the near future.
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.
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.