The objective of this post is to present the results of the first run of the deposit caps methodology, compare them to the current caps on Mars and offer some suggestions based on these results.
We’re looking into performing this exercise once every 1-3 months and present the results and recommendations to the community for further discussion.
Results and Suggestions
The following table summarizes the results of the first run of the methodology:
From the table above, notice that the Final Cap is the minimum between the Max. Cap (which represents the maximum limit determined by onchain and offchain depth) and the Framework Cap, which represents the cap according to the simulation methodology. A condensed outline of the methodology is presented below in the Appendix. Additionally, if anyone wants to dive even deeper please refer back to the deposit caps methodology linked above.
The following table compares the caps suggested by the methodology against the current caps including both the Red Bank and Farm:
As can be seen, there are three assets where the suggested cap is above the current cap: ATOM, stATOM and axlUSDC. However, for ATOM and stATOM the cap is only slightly higher than that suggested by the framework. As such, we don’t think there’s a reason to apply any changes to these markets. For axlUSDC the situation is different though. For this market the current cap is twice the suggested cap by the methodology. As such, this situation warrants careful monitoring. At the moment, however, we don’t suggest lowering the axlUSDC cap, but will consider doing so if liquidity conditions worsen on Osmosis and the margin between the suggested cap and the current cap widens further.
On the other hand, there’s one market where the current cap is 100% filled and the framework suggests it could be increased: AXL. Currently, the cap for this asset is 200,000 AXL and the framework suggests a cap of ~600,000 AXL. As such, we’ll be crafting a proposal in the coming days to increase this cap.
The methodology defines a supply cap for a given token at which the maximum collateral amount eligible for liquidation calculated over a set of historical price change scenarios, doesn’t exceed the amount that can be liquidated profitably, i.e., keeping a realized price slippage below the liquidation bonus.
The methodology consists of the following key steps along with the corresponding outputs that are provided in the table above:
- Users’ accounts are simulated a large number of times based on the current protocol snapshot under a set of historical price change scenarios to derive the extreme liquidatable amount. Output: Liq. Amount.
- The stressed onchain market depth of the minimum liquidation bonus (5%) level is estimated to obtain the maximum amount that can be liquidated profitably (keeping the slippage below the liquidation bonus) under stressed conditions. Outputs: Depth 5% and Stressed Depth 5%.
- The model supply cap is finally determined from the condition that the extreme liquidatable amount under the new supply equals to the maximum amount that can be liquidated profitably. Output: Framework Cap.
- The resulting simulation-based caps are restricted to ensure conservatism. The maximum limit is determined by onchain and offchain depth as the minimum between the Median DEX Depth 25% 90d on-chain depth, and 10 times the Global Depth 2%. Outputs: Max. Cap and Final Cap.
The following figures show the simulated liquidatable amounts (in USD) for each token over 10,000 simulations:
And the following figures show the dynamics of onchain 25% depth (in USD) for the different tokens evaluated:
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This post 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.
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