This proposal aims to increase the cap for the axlWETH/OSMO vault on Mars Farm from 250,000 axlUSDC to 500,000 axlUSDC. This increase will raise the aggregated axlWETH exposure on Mars (including both Red Bank deposits cap and Farm vault cap) to around ~20% of axlWETH’s on-chain liquidity.
Motivation
The axlWETH/OSMO vault was launched roughly a month ago and has now reached ~95% of its deposit cap. This suggests there’s considerable additional demand to use this vault. With this cap increase, we aim to fulfil this currently unmet demand and increase organic usage of the Red Bank.
Risks
The Farm vault caps serve one main purpose: They limit the exposure to any single token. This is important to mitigate idiosyncratic risks specific to any single token and to mitigate liquidity risk, which may impede proper functioning of the liquidations system and may ultimately lead to bad debt.
Obviously, as the cap increases, so do the risks explored above. At the end of the day, the right level for the caps should strike an appropriate balance between risk aversion and protocol usefulness. In this sense, we think while the proposed cap increase does increase risk for the protocol, it’s far from representing an unmanageable risk, while at the same time will help fulfill currently unmet demand for the protocol.
Disclaimers/Disclosures
This proposal is being made by Apollo, a British Virgin Islands limited company. Apollo partnered with Mars Protocol to create the Leveraged Yield Farming through the Red Bank. Apollo is a holder of MARS tokens and APOLLO equity and future token holders and have financial interests related to this proposal. 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