MRC-6: New Asset Listing - stLuna

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Description of the Proposal

We propose to list stLuna as a collateral asset for lending and borrowing on the Red Bank.

Background

Lido is a liquid staking derivative platform that allows users to earn staking rewards on the Ethereum, Solana and Terra blockchains without them locking their tokens or maintaining staking infrastructure. On Terra, Lido handles staking on users’ behalf through the liquid stLUNA token. stLUNA tokens represent a tokenized staking deposit and can be held, traded, or sold.

Motivation

There is strong demand for staked Luna on Terra. Currently, 20% of Luna is staked with bLuna. stLuna is an upgrade of bLuna on Terra which improves Terra’s liquid staking utility and decentralization. More information here.

The addition of stLuna on Mars would benefit the decentralization and security of the Terra network, benefiting the Terra ecosystem as a whole. Furthermore, holders of stLuna would be able to use their stLuna as collateral to borrow other assets while earning staking rewards on top. This will attract a larger audience to Mars as market participants borrow against their stLuna or lend their stLuna for yield. Ultimately, this will generate more fees for Mars with the new borrow demand.

Basic Information

Market Risk

Following the Red Bank Risk Framework, we calculated the following market risk metrics and scores. For Maximum intraday drawdown and the Volatility Metrics, we use Luna price data as a more conservative proxy given the nascency of stLuna. For Volume Metrics we use stLuna data.

  • Maximum intraday drawdown. -45%
  • Volatility. 6.6%
  • 24hr volume. $5,433,533
  • Worst 7-day volume. $229,938

The above metrics lead to the following scores:

Ticker 1D Worst Drawdown (1y) Volatility (90d) Volumes (90d 24hr avg.) Volumes (Worst week 1yr)
stLuna C C D D

Technical Risk

Lido’s stLuna contract has been audited by Oak Security.

Lido’s bLuna contract has been live for over 1 year. However stLuna which is an upgrade to the earlier bLuna contract has only been live for 134 days. Furthermore, due to its nascency, honey pot coefficient for stLuna comes in at just 0.03 (more on this metric here).

In terms of the quality of the smart contracts, we suggest a rating of A. Although there is a minor compiler warning, it doesn’t affect the normal operations of the contract.

Other relevant links:

Given the above, we suggest the following scores:

Ticker Honey Pot Time since launch # of SC audits Quality of SCs
stLuna D D B A

Centralization Risk

  • Smart contracts upgradability: The contracts are owned by an account which has significant power over the contracts. This account is run by a 4/7 multisig which consists of representatives of: Anchor Protocol, Delphi Digital, P2P Validator, Chorus One, DSRV, Staking Fund and Everstake. All decisions are made through DAO voting, after which the multisig executes the decisions.
  • Lido plans to transition to a DAO governance model and are working on a cross-chain governance model since the current Lido DAO is ethereum based.
  • Team: stLuna is built by the Lido team. They have deployed liquid staking derivatives on Ethereum and Solana in addition to Terra, and have deep technical and crypto expertise.

Given the above we suggest the following scores:

Ticker Permission/Trust Key Contracts Centralization
stLuna A B

Oracle Risk

For this oracle, we propose using the underlying stLUNA/LUNA exchange rate from the Lido staking contract (this exchange rate returns the underlying LUNA that each stLUNA represents) and the native Terra L1 LUNA/UST price feed to calculate the stLUNA price. Specifically, the calculation to be performed would be as follows:

stLUNA/UST = stLUNA/LUNA * LUNA/UST

As this methodology is not standard, it has some idiosyncratic risks associated with it. These risks are further explored here. Having said that, we think it’s a good temporary solution that will allow the protocol to list stLuna under a well understood risk profile. Eventually, though, we think the protocol should move to a more robust market-based feed.

Oracle Upgrade

In order to list stLuna we need to upgrade the mars-oracle contract with the new price source implementation (the one explained in the previous section). This implementation has been peer reviewed by other Mars contributors and will be audited as soon as possible.

Risk Parameters Suggestion

Following the methodology provided in the Red Bank Asset Listing Risk Framework we propose the following risk parameters:

  • Loan-to-Value: 40%
  • Liquidation Threshold: 50%
  • Liquidation Bonus: 15%
  • Optimal Utilization: 45%
  • Interest Rate Model: This asset will use a 2-slope interest rate implementation with the following parameters:
    • Base Rate (interest rate at 0% utilization): 0%
    • Slope 1: 7%
    • Slope 2: 300%
    • Optimal utilization: 45%
  • Whether the asset will be usable as collateral: Yes

Disclosures/Disclaimers:

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 and was part of the joint venture which researched and developed the Mars Protocol. Delphi Labs is one of several entities which associate with one another under the “Delphi Digital” brand. Delphi Digital’s associated entities and/or equityholders or service providers of such entities hold ASTRO and MARS and may have financial interests in this proposal–including that Delphi Ventures purchased (and continues to hold) LDO from Lido DAO’s May 2021 LDO sale. Such entities and persons may also have financial interests in competing projects or ecosystems.

All risk assessments set forth herein are Delphi Labs’ evaluation of publicly available facts in its possession against the specified risk framework. Interpretation of these facts against these frameworks could reasonably vary. Additionally, 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 its risk assessments or any of the statements set forth in this proposal, and Delphi Labs shall have no liability in the event of losses or damages ensuing from approval of the proposal. Each user and voter should undertake their own research and make their own independent evaluation of this proposal, including evaluation and interpretation of all relevant facts against the risk frameworks and all other relevant risks in order to arrive at their own personal evaluation of the proposal.

Data shown in the proposal above is as of 27 April 2022 and sourced from Flipside Crypto, CoinMarketCap, Coinhall.

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have two questions

  1. 20 mil like it will be for Luna or smaller amount?
  2. Can we see Kujira liquidation on Mars? 15% for Liquiditaion bonus is too much.

Thank you

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Hey @Stajcic, thanks for the questions! Some comments:

  1. Since we’re proposing to list stLUNA as collateral on the Red Bank (and not as a Fields strategy), it will be uncapped. In other words, users will be able to deposit any amount of stLUNA (without limit) to use as collateral on the Red Bank. This will potentially be very attractive since users won’t need to sacrifice the LUNA staking yield while depositing on the Red Bank to leverage their assets.

  2. This is a really good point and something we’ve definitely been thinking about. We like the Kujira model since, as you suggest, it allows for a flexible liquidation bonus (based on the queue) as opposed to the fixed liquidation bonus currently used by Mars. This could definitely become a very interesting area of research for the community going forward.

  3. With regards to the 15% proposed liquidation bonus, we agree that it’s on the high end. However, the main reason we suggest to go with a high liquidation bonus is to mitigate the risks associated with the ad hoc oracle implementation being used for stLUNA. These risks are further explored here. As we said in the proposal, we think this oracle solution should be temporary and we should find better solution in the long-run.

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Hey, exciting news. Already looking forward to the integration of stLuna in the fields. Things might get spicy…

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Thank you very much!

one Off topic question

What about Acala? they announce cooperation with Anchor, but I think it is better for them, and us, if they start working with Mars.
They have plan to bring LP tokens (dot/kus) in Terra ecosystem and use them for collateral on Anchor.

All the best

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Great thank you. Just a question. Why would the max. LTV be 40% and the liquidation be at 50% with a premium of 15%? Couldnt you get a better deal with @TeamKujira (https://twitter.com/TeamKujira) to ensure a liquidation with queue and lower premium?

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why not in the Fields?

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maybe we will have also in the Fields but after few months.

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Hey @stephan!

Kujira is definitely an interesting liquidation system to explore. Here are some of our thoughts on the Kujira model:

Having said that, currently Mars works with a fixed liquidation bonus system. For a system like Kujira to be implemented, the whole Mars liquidation system would need to be upgraded. While not impossible by any means, it’s definitely something that can’t be done immediately.

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Thanks for pointing that out. It’s definitely an interesting area to further explore!

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Hey @gonemultichain!

For one of Fields strategies to be able to borrow an asset from Mars, it first needs to be added to the Red Bank (since otherwise there would be no deposits to borrow from). As such, adding stLUNA to the Red Bank could allow different protocols to deploy strategies that involve borrowing stLUNA in the future.

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Definitely a no-brainer to list stLUNA as a collateral on Mars. There’s more than $200mil TVL in the stLUNA-LUNA on Astroport, providing a reliable TWAP for stLUNA.

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I will definitely use this as a safer strategy for just borrowing UST and depositing into anchor

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In full support of this proposal and the analogous one MRC-7 for LunaX. Adding the autocompounding derivatives stLUNA and LunaX to the Mars money market is an important and essential step in our development. Once it is added, leveraged looped staking of LUNA via cycle of stLUNA deposit, LUNA borrowing, and LUNA conversion to stLUNA becomes possible. Deployment of this strategy by arbitrageurs should eventually mean that all Red Bank LUNA depositors will be getting an interest rate for liquid LUNA competitive with the best staking returns.

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The link to the Red Bank asset listing risk framework seems to be broken.
https://docs.marsprotocol.io/mars-protocol/protocol/welcome-to-mars/red-bank-risk-framework

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Hey arijit,

The risk frameworks were removed from the Mars docs entirely with the v2 docs update and were migrated to GitHub.

You can find the risks frameworks at: