MRC-3: Increase Fields Caps for LUNA-UST and MIR-UST

Summary

This proposal aims to increase the Fields caps for 2 strategies: LUNA-UST and MIR-UST.

Abstract

We propose to increase the Fields caps for the LUNA-UST and MIR-UST strategies as follows:

  • LUNA-UST: Increase the cap from 5M UST (current cap) to 20M UST.
  • MIR-UST: Increase the cap from 2M UST (current cap) to 3M UST.

The reason we propose to 4x the LUNA-UST strategy cap while only increasing the MIR-UST strategy by 50% is that, relative to the pool size, the current LUNA-UST credit line is significantly lower than the MIR-UST one. Specifically, the new LUNA-UST cap would be ~7% of the size of the LUNA-UST pool while the new MIR-UST cap would be ~9% of the size of the MIR-UST pool. Additionally, the LUNA-UST strategy’s cap has been frequently maxed out since launch.

Motivation

Increasing the caps for these two strategies will allow Fields to grow and thus, Mars borrow demand to increase. We target these two strategies specifically (and not ANC-UST) given that these two strategies have regularly experienced high utilization or even maximum utilization, especially in the LUNA-UST case. At the moment of writing, the LUNA-UST strategy is maxed out and the MIR-UST strategy is sitting at 92% utilization. Meanwhile, the ANC-UST strategy’s utilization has been consistently below ~100% (sitting at 72% currently), particularly after ANC incentives eneded for the pool. In this sense, we don’t think it’s necessary to increase the ANC-UST cap at the moment.

Risks

Increasing the caps also increases the risk to the protocol given that more deposited UST will be at risk in Fields strategies. However, we think the risk of increasing the caps is low given:

  1. Liquidations: One of the most crucial components of Fields, at least in relation to risk, is its liquidation mechanism. If the liquidation mechanism works as intended, there shouldn’t be any insolvencies. As such, it was important to test the liquidation mechanism on mainnet. We’ve already been able to do so (although to a limited extent), since there have already been some liquidations on mainnet. Those liquidations worked as expected. Additionally, they showed that, in addition to the liquidation mechanism working as intended, liquidation bots have been deployed to take advantage of liquidation opportunities on Fields.

  2. Positions distribution: One potential risk vector for Fields is having a high concentration of positions at a certain liquidation price. This risk can materialize via two different ways:

    1. Number of positions: If a high number of positions is concentrated around a certain liquidation price, liquidation bots may be unable to liquidate all positions before they become insolvent. This risk depends on a number of factors such as the liquidation threshold of the strategy, the maturity of the bots ecosystem, the chain’s congestion when the liquidations are taking place and the rate at which the price of the assets of the position is changing. Given it depends on all these factors, analysing this risk is challenging and requires making a number of assumptions. Having said that, considering the current state of Fields (see figures below) and some stress testing simulations we’ve been conducting on testnet, we believe increasing the caps to the levels outlined in this proposal would pose a low risk to the protocol.
    2. Value of positions: In a similar vein to the number of positions, having a high value of positions concentrated around a certain liquidation price can materialize in insolvency if the value of the positions being liquidated is too high relative to the pool size where the assets are being liquidated. As with the number of positions, we think this risk is unlikely to materialize with the new proposed caps.

    The figures below show how positions are currently distributed on Fields (data as of March 19th):

  1. Code: Fields has been live for more than 1 month with a high bug bounty on Immunefi. Up until now, no bugs have been reported.

Disclosures/Disclaimers

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 and was part of the joint venture which researched and developed the Mars Protocol. Delphi Labs is one of several entities which associate with one another under the “Delphi Digital” brand. Delphi Digital’s associated entities and/or equityholders or service providers of such entities hold LUNA, ANC, ASTRO and MARS and may have financial interests in this proposal. Such entities and persons may also have financial interests in competing projects or ecosystems. These statements are intended to disclose relevant facts and to help identify potential conflicts of interest, and should not be misconstrued as a recommendation to purchase any token.

All risk assessments set forth herein are Delphi Labs’ evaluation of publicly available facts in its possession against the specified risk framework. Interpretation of these facts against these frameworks could reasonably vary. Additionally, 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 its risk assessments or any of the statements set forth in this proposal, and Delphi Labs shall have no liability in the event of losses or damages ensuing from approval of the proposal. Each user and voter should undertake their own factual research and make their own independent interpretation of the facts against the risk frameworks and all other relevant risks in order to arrive at their own personal risk assessment regarding the proposal.

15 Likes

Very well thought out and clear. Good job on this write-up.

Fully on board with this change. The LUNA-UST pool would be a great way to add more borrow demand while taking on relatively little risk.

6 Likes

Great analysis. I fully support this proposal and look forward to being able to put more into the LUNA-UST strat.

5 Likes

Great proposal. Let’s raise the caps! :slight_smile:

1 Like

Great analysis. I fully support this proposal.

1 Like

Fully support this proposal!

1 Like

Great! I support this proposal! :handshake:🏾

1 Like

I am in support of the core proposal; moreover, this seems like the right time to bring up (again) the possibility of a LUNA-UST bear strategy.

It is currently proposed to increase the credit line to 7% of the whole LUNA-UST pool for the bull position (user provides LUNA and borrows UST).

We have not yet implemented any credit line for a bear position for the LUNA-UST pool (i.e., user provides UST and borrows LUNA).

Thinking ahead to management of LUNA price risk with regards to loaning assets to the LUNA-UST smart contract, I think it may make sense for MARS protocol as a whole to seek a more delta-neutral position in its credit lines to any given LP contract. That would mean that as we raise the credit line for the bull position to remember that we must leave room also for the bear position’s credit line. The total amount lent should not exceed the total we are willing to lend to the LP contract. I would welcome feedback on this perspective.

6 Likes

Yes please! Especially the LUNA-UST cap since LUNA has the largest marketcap and will probably be the most stable of them all. Thanks!!

1 Like

Yes, fully support this. Thank you for preparing such a professional proposal.

1 Like

when woting?

please ASAP

1 Like

Proposal is live for voting here!

cc. @Stajcic

3 Likes

@delphilabs when we will increase Field Cap for LUNA/UST on 40 milion? (minimum)

I wasn’t at home today and it is already 100%