Description of the Proposal
We propose to list stLuna as a collateral asset for lending and borrowing on the Red Bank.
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.
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.
- Project website. https://terra.lido.fi/
- Whitepaper. https://lido.fi/static/Lido:Ethereum-Liquid-Staking.pdf (Ethereum Specific)
- Project documentation. https://docs.terra.lido.fi/
- Communities.Telegram, Twitter, Discord
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)|
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:
- GitHub page where source code is hosted.
- On-chain contracts.
Given the above, we suggest the following scores:
|Ticker||Honey Pot||Time since launch||# of SC audits||Quality of SCs|
- 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|
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.
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
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.