Description of the Proposal
We propose to list LunaX as a collateral asset for lending and borrowing on the Red Bank.
Background
Stader is a non-custodial smart contract based staking platform that provides staking solutions, including liquid staking and other staking strategies. Their liquid staking token LunaX allows users to earn staking rewards and air drops on the Terra Blockchain without them locking their tokens or maintaining staking infrastructure. LunaX is an auto-compounding accrual token that can be minted when users stake with Stader using the liquid staking pool. LunaX tokens represent a tokenized staking deposit and can be held, traded, or sold.
Motivation
Stader promotes decentralization by spreading stake across multiple best-in-class validators selected based on transparent, objective performance criteria. The addition of LunaX on Mars would thus encourage the decentralization and security of the Terra network, benefiting the Terra ecosystem as a whole.
Furthermore, holders of LunaX would be able to use their LunaX as collateral to borrow other assets while accumulating staking rewards on top. This will attract a larger audience to Mars as market participants borrow against their LunaX and/or lend it out for a yield. Ultimately, this will generate more fees for Mars with the new demand.
Basic Information
- Project website. Stader | Terra
- Whitepaper. https://staderlabs-docs.s3.amazonaws.com/Stader_LunaX_Litepaper.pdf
- Project documentation. Stader Labs | Twitter | Linktree
- Communities.Telegram, Twitter, Discord
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 LunaX. For Volume Metrics we use LunaX data.
- Maximum intraday drawdown. -45%
- Volatility. 6.6%
- 24hr volume. $1,614,052
- Worst 7-day volume. $702,970
The above metrics lead to the following scores:
| Ticker | 1D Worst Drawdown (1y) | Volatility (90d) | Volumes (90d 24hr avg.) | Volumes (Worst week 1yr) |
|---|---|---|---|---|
| LunaX | C | C | D | D |
Technical Risk
Different parts of the contracts have been audited as follows:
- Stader Protocol Audit Report by Oak Security
- LunaX Contracts by Halborn
- Stader Liquid Token by Certik
- Stader Security Audit Report by Z Institute
- Immunefi Bug Bounty
The protocol has been live for 139 days (as of 27/04/2022) and has not experienced significant security issues. However, TVL of the protocol is relatively low, with a honey pot coefficient of 0.21 (more on this metric here). In terms of the quality of the smart contracts, there were no obvious exploits found.
Other relevant links:
-
GitHub page where source code is hosted.
-
On-chain contracts.
-
Terra1xacqx447msqp46qmv8k2sq6v5jh9fdj37az898
Given the above, we suggest the following scores:
| Ticker | Honey Pot | Time since launch | # of SC audits | Quality of SCs |
|---|---|---|---|---|
| LunaX | D | D | A | A |
Centralization Risk
- Smart contracts upgradability: There is a manager account which has considerable power over stake allocation and validator delegation. This is so that Stader can correct uneven stake distributions, replace low performing validators and move stake away from jailed validators when necessary. The manager account is a 2/3 multisig controlled by Stader, a community validator and a community member not associated with Stader.
- The admin key is upgradable with a 5/8 MultiSig and controls the ability to migrate code. Signers of the admin key multisig include representatives of: Stader, 2 independent Terra community validators, TFL, Accel Partners, DACM Fund, Solidity Ventures and 1 key community member
- Team: Stader has live liquid staking solutions on 4 blockchains including Terra, Hedera, Fantom, Polygon as of today. Stader closed private and strategic sale rounds from a range of marquee investors early 2021 including TFL, Pantera, 3AC, Jump Crypto, Coinbase Ventures and has been actively operating in the crypto space since March 2021.
- Stader was founded by Sid Doddipalli, Amitej Gajjala, and Dheeraj Borra. Sid has been in the crypto space since 2013 and has experience building Crypto products having managed $100M in assets using his mining optimization software in 2017. He has an MS in Financial Engineering from Columbia University. Amit has held multiple top management positions across unicorns such as Swiggy and renowned consulting firms such as A.T. Kearney. Dheeraj has held senior engineering positions with some of the biggest tech firms in the Bay Area - LinkedIn, Paypal, Facebook, Blend Finance
- All three founders have education pedigree from the Indian Institute of Technology (IIT) and the US (Columbia university and UT Austin).
- Advisors range from founders of L1/L2 blockchains, top Defi protocols and key prominent members of TFL.
Given the above we suggest the following scores:
| Ticker | Permission/Trust | Key Contracts Centralization |
|---|---|---|
| LunaX | A | B |
Oracle Risk
For this oracle, we propose using the underlying LunaX/LUNA exchange rate from the Stader staking contract (this exchange rate returns the underlying LUNA that each LunaX represents) and the native Terra L1 LUNA/UST price feed to calculate the LunaX price. Specifically, the calculation to be performed would be as follows:
LunaX/UST = LunaX/LUNA * LUNA/UST
As this methodology is not standard, it has some idiosyncratic risks associated with it. These risks were explored in detail in the proposal to add stLUNA as collateral (we encourage the community to read the risks associated with that proposal here, as they apply to this methodology in a similar manner). While not perfect (given the mentioned risks), we think this methodology is a good temporary solution that will allow the protocol to list LunaX 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 LunaX 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
Data shown in the proposal above is as of 27 April 2022 and sourced from Flipside Crypto, CoinMarketCap, Coinhall.