Summary
The objective of this proposal is to list DYDX as a collateral asset on the Osmosis outpost of the Red Bank.
Motivation
dYdX is currently the leading perpetuals DEX by volume. Historically, the project has been based on Ethereum. With its upcoming v4 launch, though, this changes as the protocol is migrating to its own Cosmos-based blockchain. This migration responds mainly to the decentralization needs of the project.
An Ethereum-Cosmos migration of such a successful project is unprecedented. This makes it a highly anticipated launch, especially within Cosmos. This proposal aims to anticipate the popularity of its token by proposing to list it on the Red Bank. Ultimately, we believe this listing has the potential to increase organic usage of the Red Bank.
Risks
In the sections below weâll explore the risks associated with listing DYDX and the proposed risk parameters for the listing.
Technical Risk
While the dYdX chain has been audited and thereâs a significant active bug bounty, the main technical risks come from the nascency of the chain and all the custom modules that compose it, which make it a more complex product than a standard Cosmos SDK chain. Ultimately, this means there can exist unknown unknowns which could materialize in different ways. The materialization of some of these risks may have significant consequences for DYDX the asset, which could expose Mars to bad debt.
The following table summarizes the complete list of requirements suggested by the Mars Risk Framework and their status:
| Metric | Requirements | Comments |
|---|---|---|
| Time Since Launch | - | dYdX Chain launched on October 26th, 2023. |
| Custom Public Audit | Ideal | dYdX was audited by Informal Systems. |
| Recent Audit | Ideal | The audit was performed within the last year. |
| No Critical Vulnerabilities | Ideal | No critical vulnerabilities have been exploited. |
| Bug Bounty Program | Ideal | dYdX Chain has a live bug bounty of up to $5M, depending on the issueâs severity. |
Centralization Risk
dYdX v4 will be launched in two stages: Alpha and Beta. âThe âAlphaâ stage ensures that the dYdX Chain is stable and reliable, prioritizing an economic balance where the value of staked DYDX tokens exceeds the value of the networkâs on-chain liquidity, among other valid security measures. In contrast, the âBetaâ stage would bring traders, liquidity providers, and other essential system components into the fold.â
During the Alpha stage, the dYdX Operations subDAO (a governance elected subsegment of the dYdX DAO dedicated to managing the DAOâs operations) will have control over some components of the protocol while it is deemed ready for the Beta stage. Throughout this stage, the subDAO will limit trading functionality to prioritize stability and security. This âtestingâ stage is intended to allow for âlow-friction forks or roll-backs if confronted with significant issues, such as errors, functional problems, security vulnerabilities, or hostile attempts by malicious actors.â A governance vote will define when the protocol is transitioned to the Beta stage.
The Operations subDAO is currently managed by 4 trustees and an enforcer who oversees the trusteesâ work.
Oracle Risk
We propose to use the Pyth DYDX/USD feed.
Note that this feed currently tracks the price of Ethereum-based DYDX. While DYDX on dYdX Chain can be minted on a 1:1 basis using Ethereum-based DYDX, there exists some bridging risk between Ethereum-based DYDX and DYDX on dYdX Chain. If this bridging risk were to materialize into different prices for Ethereum-based DYDX and DYDX on dYdX Chain, the protocol could be exposed to bad debt as it wouldnât be aware of this price divergence. As more tokens are migrated to Cosmos and the Cosmos-based token version is more widely adopted we expect this risk to decrease, as the price reported by Pyth will more accurately reflect the Cosmos-based price.
Risk Parameters Suggestion
- Max. LTV: 74%
- Liquidation LTV: 75%
- Deposit Cap: 25,000 DYDX
- Interest Rate Parameters:
- Optimal Utilization: 60%
- Base IR: 0%
- Slope 1: 15%
- 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? 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 âDelphi Digitalâ brand. Delphi Digitalâs 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 and dYdX/DYDX. Delphi Ventures, a related company, is an investor in rights to receive DYDX. 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.