MRC-5: Extend Credit Line for Apollo ANC-UST Astroport Strategy

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New Credit Line Extension: Apollo ANC-UST Astroport Strategy

Description of the Proposal

Apollo DAO is a yield management and auto-compounding platform on Terra. We propose providing Apollo DAO with access to a credit line from Mars to enable ANC-UST leveraged yield farming on Apollo. This would initially be for the ANC-UST Astroport based vault and would allow users to leverage their vault positions.

Value Proposition

Apollo DAO currently has $40m in TVL and provides users access to a large number of auto-compounding Terra vaults. Apollo will continue to add new vaults, including bLuna/Luna, stLuna/Luna, nLuna and nEth. We also provide other benefits, such as being able to farm Apollo tokens, with all revenue that Apollo generates going to the Warchest.

By enabling a credit line for Apollo DAO, it would increase UST borrowing from Mars, incentivising more deposits to Mars and increasing Mars’ profitability and fees.

In the future, Apollo also aims to boost their vaults through Astroport’s “Boosties”. The combination of leveraged yield farming, Astroport “Boosties” and Apollo rewards will provide unrivaled rewards for farmers driving borrowing demand on Mars.

The Apollo Warchest also holds nearly 300k Mars tokens, which provides Apollo DAO with a direct incentive to help Mars grow, but also a strong incentive to maintain the safety and security of Mars’ funds. Apollo’s initial implementation of leverage yield farming is heavily based on the leverage yield farming contracts created by the Mars team, with only a few small modifications, which will allow us to provide Apollo rewards to farmers.

Basic Information

Apollo

Anchor

Astroport

Technical Risk

The base smart contract (the smart contract that would receive the credit line) as well as the various smart contracts the strategy interacts with have been audited as follows:

In terms of the quality of the smart contracts, as mentioned above, Apollo will use a slightly modified version of the current Fields smart contracts, which have been live for more than a month on mainnet working properly. Additionally, these contracts have been audited several times and have an active bug bounty on Immunefi.

Other Relevant Links:

  • GitHub page where source code is hosted.

  • Anchor: Anchor Protocol · GitHub

  • Astroport: Astroport · GitHub

  • On-chain contract.

    • Astroport ANC-UST Pair: terra1qr2k6yjjd5p2kaewqvg93ag74k6gyjr7re37fs
    • Astroport ANC-UST LP: terra1wmaty65yt7mjw6fjfymkd9zsm6atsq82d9arcd
    • ANC contract address: terra14z56l0fp2lsf86zy3hty2z47ezkhnthtr9yq76
    • Apollo ANC-UST Strategy: ​​terra1j5ec7ecssqvyfxfzguuxghrc9ahz8h35a9lxdp

  • Testnet contract (only applies for Base SC).

    • Apollo ANC-UST Strategy: terra1lanxgewats337t49mnkaeh5g098j2g7e87k87s

Centralization Risk

For the Base smart contract (SC):

Apollo

  • SC upgradability: How is the SC upgradable? Is it immutable, DAO upgradable or controlled by a multisig? If it’s a multisig, what does it control and who are the signers?
    • Contracts are upgradeable by CosmWasm admin feature. Admin is a 3/5 multisig, where the signers are distributed as follows: 2 from the Apollo team, 1 from the Nexus protocol team and 2 Mars contributors.
  • Is the SC always in control of the borrowed assets?
    • Yes. Borrowed assets are used to pair with user-supplied assets in liquidity pools, and received LP tokens are staked in Astroport’s Generator contract. These funds can be withdrawn only by the Base SC.
  • What oracle is used for the strategy?
    • Mars ANC TWAP Oracle

For the other SCs and assets the Base SC interacts with:

Anchor

  • SC upgradability: Anchor currently has an upgradeable multisig in place, controlled by members of the Anchor team. There is a plan in place to change this to a DAO process.

Astroport

  • Astroport: 3/5 Multisig comprising of Astroport contributors. In the process of changing to a DAO governance.

Risk Parameters Suggestions

Following the C2C Lending Credit Line Extension Risk Framework, we calculated the following risk metrics:

  • Maximum Intraday Change : 1.44x
  • Daily Volatility (30d) : 11.5%
  • Daily Volatility (60d) : 9.7%
  • Daily Volatility (90d) : 9.0%

Using the above metrics as input, we suggest the following risk parameters for this strategy:

  • Maximum Leverage: 2.5x (60% LTV)
  • Liquidation Threshold: 2.86x (65% LTV)
  • Liquidation Bonus: 5%
  • Requested Credit Line Size: 5M UST
  • Minimum Position Size: 300 UST
  • TWAP Oracle Implementation: Mars ANC TWAP
11 Likes
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Im looking forward to getting in on this

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This is a thorough proposal and well documented. Thank you for preparing this and I will support it with my vote, when it is put up.

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This is a good idea, apollo has proven itself secure and has attracted some TVL because of its uses. Seems like a low-risk bet.

We could extend a small credit line ($1-2m) at first as a test and re-evaluate from there. I would support that vote

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Seems like a good opportunity to benefit a DAO in the Terra ecosystem. Apollo is a unqiue product with a robust warchest - with 1,000,000 UST locked in MARS lockdrop.

I will reiterate @speggos suggestion above:

Feels like interests are aligned and could be a great first credit line for Mars.

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Thanks for the kind words!

Is there a reason you would prefer a credit line of $1-2M rather than the requested $5M? From a security perspective, this contract is almost the same as the currently deployed ANC-UST strategy deployed by the Mars team. We’ve only made some very small changes to allow giving Apollo rewards on top and had those changes reviewed by Larry.

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MARS protocol seems to be making decisions about the size of the credit pool based upon % share of total pool size as a function of contract-technical, centralization, and volatility risk. So effectively, any credit line to Apollo for the Apollo ANC-UST strategy thus takes away from possible credit that could be given to the base Astroport ANC-UST strategy.

I confess not being quite familiar with how Apollo works, but it seems there’s two possibilities:
Case 1) The Apollo strategy is not completely financially identical to the base Astroport ANC-UST strategy: in which case we have to evaluate how the Apollo rewards should be valuated by MARS. The required evaluation of the stability of Apollo token has not been provided here. So in this case, I feel this proposal should be rejected, because it does not provide complete assessment of risk.
Case 2) The Apollo strategy is completely financially identical to the Astroport ANC-UST strategy. In this case, there would be no reason to add a middleman and another protocol that needs trusting. MARS protocol would be taking on unnecessary risk.

Because in both cases my conclusion is to reject, I will not be supporting this proposal. A evaluation of Apollo’s token valuation akin to the one that’s necessary to list the token as collateral in accordance with the MRC might make me change my mind.

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personaly,

I’m OK with 5M

Hope we will soon have discousons about 50M credits line, 5M is “nothing” for app like APOLLO !

P.S.
@Sturdy, also hope you/APOLLO will need soon some money to buy WW tokens for participation in governace. Sebastian need serious help to manage Tresary fond in WW.

all the best

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Thank you for your thoughts.

To re-iterate, the only difference between this strategy and the currently existing ANC-UST strategy at this stage is that we give out Apollo rewards on top. We are already in the process of developing this strategy further to allow for example borrowing also ANC to create hedged positions. These extra features however would make sense to get audited, which is why we are starting now with the simple addition of Apollo rewards.

Since we are giving out Apollo rewards, this strategy is not financially identical to the “base Astroport ANC-UST strategy”, and is in fact strictly better for the user in terms of yield. I hope that clears it up!

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Thanks very much for your response. It sounds like the features your team is planning on developing will be very important (and lucrative) pieces of the system going forward. I applaud your work.

Your phrasing “at this stage” is very interesting. Can you assure that the liquidation logic currently operates only on the ANC and UST portions of the position, and that this will not change going forward without going through MARS governance? If ApolloDAO provides this assurance, then I will no longer see need to examine a risk evaluation of the Apollo rewards themselves at this stage, because the Apollo rewards will not influence the stability of the leveraged LP position. Otherwise, I have to assume they might, and the disclosure remains incomplete.

I do want to ask: why is it necessary for Apollo to request a separate credit line to grant Apollo rewards? Is it possible for Apollo to instead make a vault whose purpose was to take in leveraged MARS positions, and pay rewards on them there? Would that become a different business model? In such a design, MARS protocol wouldn’t need to issue a special credit line to Apollo, but could simply expand the credit line to the Astroport pool if that demand were to be filled. As I see it, the incentives for each protocol would be cleaner aligned and compartmentalized that way - MARS would get to worry about the credit line and Apollo would get to worry about its own rewards.

As currently proposed, every subsequent credit line decision in MARS regarding the ANC-UST pool will become a zero-sum game between Apollo and all other potential creditors. I don’t think that will be good for MARS protocol’s development. Governance is already the slowest step in our growth; it doesn’t need to be made more contentious.

Moreover, I envision an eventual state of the credit line logic in MARS protocol will be for xMARS stakers to approve, at some point, some sort of PID controller for each Astroport credit line, instead of adjusting the numeric total by governance vote each time. In that event, having a special credit line granted to Apollo as a middleman would be problematic.

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Thanks for the followup thoughts!

Yes, the liquidation logic and position valuation logic is unchanged. Only the LP position is counted into the positions value. The Apollo token rewards are merely given out in a separate contract and can be claimed there.

For your second question, yes it would technically be possible for us to create some kind of wrapper around the currently deployed ANC-UST strategy and give out Apollo rewards that way. However, that would be quite counter-productive in my opinion, since it would require writing a completely new contract from scratch that would serve only that purpose. The purpose of this contract as mentioned is to get our feet wet with a simple improvement upon the current strategy and then work on adding other features in the near future. Adding those other features wouldn’t be possible with a wrapper contract, so it makes sense to work on improving the currently deployed strategy contract. Hope that makes sense!

To add some flavour to your point about extending credit lines to various parties being a zero-sum game, I actually think this is beneficial for Mars and for Mars depositors/lenders. The more borrowing demand, the higher the interest rates that will be paid out to lenders. I think it’s also in the best interest of Mars to hand out credit lines to other protocols who are interested in them, or else Mars will end up losing out to competitors, be it Edge Protocol, or perhaps Apollo would create our own money market. For now we prefer to collaborate with Mars as we can focus on creating strategies and Mars can focus on improving the money market and listing of collaterals, etc.

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These are really good points, actually. If I understand correctly, you’re asking what the specific benefit of implementing a line from:
Mars → Appolo → Astro
vs.
Appolo → Mars → Astro

Ie, just having Appolo DAO issue a pool implenting the MARS ANC-UST pool, keeping things tidy and allowing MARS users to decide between Mars and Appolo. This limits the risk exposure of MARS, since we maintain full control over our own vaults instead of using Appolo’s codebase.

In that case no action is needed by MARS, and Appolo can have funds held in their own contracts.

If Appolo sees it as a benefit to their platform to work with MARS, perhaps we can get devs talking about creating that wrapper

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Thanks for the comments everyone! The proposal is now live on the Martian Council: Mars Protocol

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Looks great, exciting times ahead with the first c2c iteration.

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Thanks to all for a healthy and respectful debate. Noting that dev time and trust in the dev teams are among the most important resources that these nascent protocols have to manage, I very much appreciate Apollo team’s willingness to lead by example in their engagement here.

Thank you, @Sturdy, for articulating Apollo’s business vision of a successful Mars-Apollo collaboration. @speggos summarized my earlier position correctly, and I think those concerns still stand. But you made me reconsider my assumptions of what proper boundaries between protocols might be in C2C business. I am now convinced that approving this proposal is probably necessary for Mars Protocol.

I do not want Mars to have the norm of protecting the monopoly of the first protocol to develop a strategy. In this case, Delphi Labs, which is a key mover behind both Astroport and Mars, got the first of these ANC-UST strategies approved for Astroport. Apollo is second to this market with a better product for the retail consumer. The second product deserves its own chance.

Nevertheless, I believe this proposal has raised/exposed issues in two areas that previous proposals have not. The first area is how Mars should evaluate the risk posed by granting credit to strategies whose contracts xMARS stakers do not control. The second area is how Mars should govern the partitioning of credit lines to substantially similar strategies run by different & competing protocols.

Both these issue areas give rise to Mars Protocol policy questions from a risk management perspective that xMARS stakers should probably address sooner, rather than later. Answering these questions may enable us to better promote and protect decentralization in the Terra ecosystem. Someone correct me please if I’m wrong, but I believe the MIP framework provides only process guidance here, not criteria. I think this will require its own discussion.

My end conclusion is this: extending this credit line is both necessary and beneficial for Mars. Yet I think continuing to do this in a haphazard way will hurt us eventually.

@Sturdy, good luck to Apollo in the vote ~ and it looks like you won’t need it!