Summary
The objective of this proposal is to list stOSMO on the Osmosis Outpost (Red Bank and Mars v2).
Motivation
We believe this is an ideal asset to be used as collateral and could generate considerable organic demand for the Mars Outpost on Osmosis. As a liquid staking derivative, stOSMO allows users to effectively use a representation of OSMO across DeFi without sacrificing the staking yield. As such, this removes the current cost of opportunity of using OSMO across DeFi and could catalyze more organic usage for the Mars Outpost.
Furthermore, this listing would allow users of the Red Bank and Mars v2 on Osmosis to leverage stake OSMO, a popular strategy we’ve already seen gain significant traction with stATOM-ATOM. This further strengthens our conviction that this listing has the potential to further increase activity within the Red Bank and Mars v2 on Osmosis.
Risks
In the sections below we’ll explore the risks associated with listing stOSMO 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:
| Metric | Requirements | Comments |
|---|---|---|
| Time Since Launch | Ideal | stOSMO has been operational since October 2022. |
| Custom Public Audit | Ideal | Stride has been independently audited by CertiK, Oak, and Informal Systems. |
| Recent Audit | Ideal | The audits happened in September of 2022. |
| No Critical Vulnerabilities | Ideal | No critical vulnerabilities have been exploited. |
| Bug Bounty Program | Ideal | Stride has a live bug bounty that pays up to $1M USD. |
Centralization Risk
In terms of centralization risk, the asset meets the minimum requirements suggested by the Mars risk framework:
| Metric | Requirements | Comments |
|---|---|---|
| Owner Decentralization | Minimum | Owners can change validator weights, register new zones, and trigger ICQs for updating validator shares after a slashing. A council decides on the appropriate validator weights, and the Stride Foundation multisig (consisting of Aidan, Riley, and Vishal) implements the council’s recommendations. |
| 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
We propose the use of a custom oracle for stOSMO that incorporates both the Stride redemption rate (RR) as well as stOSMO’s market price as follows:
stOSMO/USD = min(stOSMO/OSMO TWAP, stOSMO/OSMO RR) * OSMO/USD
Where:
- stOSMO/OSMO TWAP is the 30 minute arithmetic mean TWAP from the stOSMO/OSMO Stableswap pool on Osmosis.
- stOSMO/OSMO RR is the redemption rate of stOSMO according to the Stride contract deployed on Osmosis.
- OSMO/USD is the Pyth provided feed, used to normalize the price to USD.
This implementation achieves the following:
- It is robust to upwards price manipulation attempts since the price will always have a ceiling that is determined by the redemption rate. As such, even if the TWAP is manipulated, an attacker is not going to be able to reflect that into the price Mars uses.
- While downward price manipulation can still happen, it is mitigated by two factors. First, by using an arithmetic mean TWAP, which is more robust to downwards price manipulation attacks than a geometric mean TWAP. Second, given that stOSMO won’t be borrowable, the scope of possible downwards price manipulation exploits is reduced to attacks that artificially decrease the price to make a certain position liquidatable. While this can happen, we believe it’s unlikely because: 1) the potential profits are lower than a pure price manipulation attack to steal assets (especially with Mars’s new auction-based liquidation mechanism); and 2) the risk is higher given that the attacker cannot guarantee that he’ll be the one performing the liquidation.
- It allows Stride to aggregate liquidity in more efficient pool types (Stableswap or Supercharged Liquidity instead of XYK) where TWAP-based oracles by themselves (without the redemption rate) would not be robust.
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: 1,500,000 stOSMO
- Interest Rate Parameters:
- Optimal Utilization: 60%
- Base IR: 0%
- Slope 1: 10%
- Slope 2: 300%
- Liquidation Parameters:
- Starting LB: 0
- Slope: 1
- Max. LB: 0.2
- Min. LB: 0.05
- Target Health Factor: 1.05
- Protocol Liquidation Fee: 0.25
- Reserve Factor: 10%
- Usable as collateral? Yes
- Available to borrow? No
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 code and parameter changes.
This proposals implementation includes a migration to the oracle contract to change a price souce previously created to support geometric TWAP + Redemption Rate. Previously this price source could only be configured with a geometric TWAP, with this change the price source can now be configure with either a geometric TWAP or an arithmetic TWAP.
The implementation will include:
- migration of the oracle contract
- setting a new price source for stOSMO/USD in the oracle as described above
- updating the mars-params contract to include asset information described above for stOSMO
- initialising the stOSMO asset on the red bank contract
- adding the relevant swap routes to the swapper contract to enable trading of stOSMO with other assets whitelisted in Mars Protocol
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.