Summary
The objective of this proposal is to list wstETH (bridged through the canonical Lido bridge) on the Red Bank’s Neutron Outpost.
Motivation
We believe this is an ideal asset to be used as collateral and could generate considerable organic demand for the Red Bank on Neutron. The main reason for this is that, as a liquid staking derivative, wstETH allows users to effectively use a representation of ETH across DeFi without sacrificing the staking rewards. As such, this removes the current cost of opportunity of using ETH across DeFi and could catalyze more organic usage for the Red Bank.
Furthermore, in addition to this MRC, we’re also proposing to list axlWETH within the Red Bank. This additional listing would allow Red Bank users on Neutron to leverage stake ETH, which has been a significant growth driver for protocols on Ethereum, as evidenced by the fact that 51% of Aave V3’s TVL today is wstETH. This further strengthens our conviction that this listing has the potential to catalyze activity within the Red Bank on Neutron.
Risks
In the sections below we’ll explore the risks associated with listing wstETH and the proposed risk parameters for the listing.
Technical Risk
In terms of technical risk, the asset meets the minimum requirements suggested by the Mars risk framework:
Centralization Risk
There are some centralization risks worth noting:
- The satellite contracts on Neutron, which represent a critical part of the wstETH bridging infrastructure, are still owned by a multisig and represent an important centralization risk. If this multisig were to be compromised, be it via regulatory pressures, a hack/exploit or just multisig member misbehavior, the asset could suffer significant consequences that could translate into drastic repricings that may expose Mars to bad debt.
- The Axelar Gateway contracts pose an important centralization risk for the asset. If the Axelar multisig that controls these contracts were to be compromised, be it via regulatory pressures, a hack/exploit or just multisig member misbehavior, the asset could suffer significant consequences that could translate into drastic repricings that may lead to protocol insolvency. While control over these contracts is expected to be handed to the DAO over the coming weeks, as of now it’s still under the purview of the multisig.
The following table summarizes the complete list of requirements and their status:
Oracle Risk
We propose to use the Pyth wstETH/USD feed to price wstETH.
Note that this implementation uses the price of the underlying asset, rather than the bridged asset. This is important given that, if anything were to happen to the bridge (such as a loss of assets), Mars would effectively be unaware of it and would still be pricing the bridged asset as the underlying, opening the protocol to potential losses. This is a known but important risk. As such, we think the current implementation should be considered an interim one, as a more robust implementation that incorporates bridge proof of reserves is adopted.
Risk Parameters Suggestion
Following the methodology suggested by the Mars Risk Framework, we propose the following parameters:
- Max. LTV: 68%
- Liquidation LTV: 70%
- Deposit Cap: 50 wstETH
- Interest Rate Parameters:
- Optimal Utilization: 60%
- Base IR: 0%
- Slope 1: 10%
- Slope 2: 300%
- Liquidation Bonus: 10%
- Reserve Factor: 10%
- Usable as collateral? Yes
- Available to borrow? Yes
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 changes.
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.