Summary
The objective of this proposal is to list stATOM as a collateral asset on the Neutron outpost of the Red Bank.
Motivation
As was said in the proposal to list stATOM on the Osmosis outpost of Mars: “we believe this is an ideal asset to be used as collateral and would generate considerable organic demand for the Red Bank. The main reason for this is that, as a liquid staking derivative, stATOM allows users to effectively use a representation of ATOM across DeFi without sacrificing the staking rewards. As such, this removes the current cost of opportunity of using ATOM across DeFi and could catalyze more organic usage for the Red Bank.”
This motivation still stands and has been corroborated live during the time stATOM has been listed on the Red Bank and (indirectly) on Farm (via stATOM/ATOM) on Osmosis.
Risks
We believe stATOM is worth incorporating into the Red Bank for the following reasons:
- Technical and Centralization Risks: As will be covered in the next sections, stATOM covers most minimum requirements in terms of technical and centralization risks, as suggested in the Risk Framework. The only requirement not met is having a bug bounty program, which the team has plans to implement with ImmuneFi but isn’t live yet.
- Oracle Risk: As will be covered in a section further below, we believe the current level of liquidity in the Astroport stATOM/ATOM XYK pool, in addition with the proposed LTV for the asset, generate sufficient security guarantees for the price feed.
- Parameters: The suggested LTV, deposit cap and other risk parameters for the asset are conservative.
- Organic demand: As mentioned previously, we believe this asset will generate organic demand for the Red Bank.
Technical Risk
| Metric | Requirements | |
|---|---|---|
| Time Since Launch | Minimum | stATOM has been operational since September 2022. While it would be preferable for the asset to have been active for at least a year, there are no minimum prerequisites. |
| Custom Public Audit | Ideal | Stride has been independently audited by CertiK, Oak, and Informal Systems. |
| Recent Audit | Ideal | All of the above audits have occurred within the last 12 months. |
| No Critical Vulnerabilities | Ideal | No critical vulnerabilities have been exploited. |
| Bug Bounty Program | Not met | Stride has plans for a $500k Immunefi Bug Bounty program, however it is not live as of writing. |
Centralization Risk
| Metric | Requirements | |
|---|---|---|
| Owner Decentralization | Minimum | Owners can change validator weights, register new zones, and trigger ICQs for updating validator shares after a slashing. An open advisory council recommends validator weights, STRD stakers vote to approve or deny, and the Stride Protocol Association multisig (consisting of Aidan, Riley, and Vishal) implements the validator weights. |
| Admin Decentralization | Ideal | No upgrade keys - STRD token holders vote for upgrades using the standard Cosmos chain upgrade process. |
| Other permissioned addresses | Ideal | No other permissioned addresses. |
Oracle Risk
In the event of an oracle attack, an attacker could deposit stATOM as collateral, inflate its price, and borrow other assets without any intention of repaying them. Conversely, the attacker could deflate the price of stATOM to borrow it at a lower value, also without any intention of repaying the borrowed asset. Both scenarios could result in bad debt for the protocol.
While some of these risks will always be present, we believe they are mitigated by:
- There’s currently ~$3.75M in liquidity in the stATOM/ATOM XYK pool on Astroport, from where the price of stATOM will be retrieved. We believe this level of liquidity, coupled with the proposed LTV, offers a sufficient level of manipulation resistance for the feed. For instance, a 30 block (~3 minutes, conservative) upwards price manipulation attack, without any arbitrage (very conservative as it makes the attack cheaper and there’s a clear arbitrage opportunity for stATOM) would require a minimum of ~$100M USD worth of ATOM to perform profitably. Additionally, it would require that the attacker holds stATOM as collateral in excess of the current deposit cap.
- The deposit cap both reduces the size of a potential attack and mitigates an attacker being able to amass a significant synthetic stATOM position by looping the asset multiple times (see here for an example of the attack).
- Given that stATOM won’t be borrowable, the attack vector where the price is artificially reduced wouldn’t be exploitable.
For the above reasons, we believe the proposed oracle implementation for stATOM is robust.
Oracle Implementation
Given that the stATOM price needs to be normalized to USD, the proposed oracle implementation is as follows:
stATOM/USD = stATOM/ATOM (TWAP) * ATOM/USD (Pyth)
Where:
- stATOM/ATOM is the 30 minute geometric mean TWAP from the stATOM/ATOM XYK pool on Astroport on Neutron.
- ATOM/USD is the ATOM price feed from Pyth.
Risk Parameters Suggestion
- Max. LTV: 44.5%
- Liquidation LTV: 45%
- Liquidation Bonus: 15%
- Deposit Cap: 50,000 stATOM
- Borrow Cap: 0 stATOM (not borrowable)
- Interest Rate Parameters:
- Optimal Utilization: 60%
- Base IR: 0%
- Slope 1: 10%
- Slope 2: 300%
- Usable as collateral? Yes
- Available to borrow? No
Note: The proposed Max. LTV, Liquidation LTV and Deposit Cap are more conservative than on Osmosis. The reason for this is the lower liquidity available onchain, which impacts both the safety of the TWAP and liquidations. As liquidity evolves, these parameters could be reevaluated and further increases could be proposed.
Implementation
This is a signaling proposal, not an executable proposal.
The Mars smart contracts on the Neutron chain will be initially controlled by the Builder Multisig address. If this proposal passes, the builders will utilize their multisig to make the necessary adjustments to list the asset.
Copyright
Copyright and related rights waived via CC0.
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.