[MRC-98] Comprehensive Signaling Proposal for Mars Protocol

[MarsFoundation]

Tokenomics 2.0

This comprehensive proposal seeks to integrate several pivotal strategies aimed at enhancing the Mars Protocol’s sustainability and efficiency. It includes an update to our token economics, an acknowledgment of contributions through foundation allocations to cover operational costs and a phased rollout plan for governance and operational transitions. By aligning these elements, we aim to position Mars Protocol as a leader in the evolving DeFi landscape.

Introduction

A few months ago we submitted a forum post with a list of tokenomics ideas to discuss with the community for an eventual Tokenomics 2.0 upgrade for Mars. The objective of this post is to take that initiative forward and formally submit those ideas (refreshed based on feedback from the community) for a signaling vote. The following section summarizes the proposed Tokenomics 2.0 upgrade.

Reducing the Community Pool Size

The current Community Pool size is ~557M MARS. Most of these tokens are not being used or expected to be used in the short to medium term. As such, we propose to burn 300M tokens. We believe the remaining tokens (~257M MARS) should be enough to cover any short and mid-term needs of the protocol.

It is worth noting that with the deprecation of Mars Hub and the governance system moving to DAODAO, there will be no need to spend on security/validator rewards, which currently constitute a significant cost for the protocol. Historically, this cost has been paid from the Community Pool, which further strengthens the case for reducing its size.

Improving the Fee Distribution Mechanism

In the current model, protocol fees, which are generated from interest payments within every market on the Red Bank, are distributed as follows:

• Safety Fund: 50% of fees go to the Safety Fund in the form of axlUSDC.
• Mars Stakers: 50% of fees go to Mars Hub stakers in the form of MARS.

We propose to change the distribution as follows:

• Safety Fund: A share* of protocol fees will be used to buy nobleUSDC on the market to be sent to the Safety Fund.

• Buy and Burn: A share* of protocol fees will be used to buy MARS on the market and burn those tokens.

• Buy and LP: A portion* of protocol fees will be used to provide liquidity for MARS. The mechanics for LPing could work as follows:

• 50% of fees would be used to acquire MARS.

• The remaining 50% would be used to acquire the pair token.

  • This could be OSMO, NTRN, nobleUSDC or whatever governance decides. This decision should be made per outpost.

On Osmosis:

• The MARS and pair tokens are deposited across the whole range of a MARS/PAIR 0.2% Supercharged Liquidity pool.

• If the pool doesn’t exist it would need to be created first.

On Neutron:

• MARS and PAIR are deposited into the MARS/PAIR Astroport PCL pool.
  • If the pool doesn’t exist it would need to be created first.

This new fee distribution methodology achieves the following:

1. The buy and burn simplifies fee distribution to tokenholders and will have a deflationary effect on token supply.
2. The buy and LP mechanism builds organic, protocol owned liquidity for the token, which might reduce or completely eliminate the introduction of liquidity mining schemes to build up that liquidity.
3. It maintains flows to the Safety Fund, which is a key component of Mars.

The share of fees that should be allocated to each bucket are governance defined and updatable parameters.

Staker Fee Discounts

Users would be able to stake MARS to receive a fee discount on some features of Mars. The discount would follow a tiered system as follows:

Tier	Stake required*	Fee*
Regular user	< W MARS	Regular fee (RF)
VIP 1	>= X MARS	D1 * RF
VIP 2	>= Y MARS	D2 * RF
VIP 3	>= Z MARS	D3 * RF

• Where W < X < Y < Z and D1 > D2 > D3. And D1, D2 and D3 indicate different discount levels, all between 0 and 100%.

Note that the above tiers and discounts are for illustrative purposes only. The final number of tiers and discounts should be determined and voted on by MARS tokenholders.

Grant Request for Mars Protocol Foundation Allocation

The Mars Protocol Foundation, an entity recently established by active Mars contributors, has been launched to drive the protocol’s growth and innovation. Initially seeded with a MARS allocation from Delphi Labs, the Foundation now seeks a larger grant of 85 million MARS from the community pool.

This grant aims to ensure a stable financial runway, providing the necessary resources to continue our work despite market volatilities. As Mars Protocol expands, there is an increasing need for additional developer and risk-analysis talent. The proposed allocation will secure this talent and maintain financial stability by converting MARS into stablecoins through Over-the-Counter (OTC) deals. These transactions will adhere to strict vesting schedules, responsibly managing the Foundation’s liquidity and ensuring uninterrupted operations while pursuing long-term growth initiatives.

In summary, the requested 85 million MARS allocation is essential for advancing Mars Protocol’s mission, securing top talent, and maintaining a stable financial foundation for ongoing and future projects.

Rollout Plan

Phase 1: Neutron Token Migration, Protocol-Owned Liquidity (POL), DAODAO Governance Signal Voting, Buy & Burn, Community Pool Burn

Phase 1 will focus on enabling signaling voting to move from Mars Hub to Neutron DAODAO and improve the token position by increasing liquidity, reducing FDV and moving to a token burn model for protocol revenue

• Signal vote on Mars Hub to move governance to DAODAO on Neutron
• Token to Migrate from Mars Hub to Neutron under DAODAO governance
• Create Transmuter pool to convert old vs new token on Neutron Astroport
• Propose a POL deal with NTRN to build MARS liquidity on Neutron
• Staking rewards will conclude, transitioning to a buy & burn model in the short to mid-term on both Osmosis and Neutron
• Transfer 85 million MARS to the Mars Protocol Foundation
• Burn 300 million community pool tokens as part of this phase

Phase 2: Neutron Safety Fund, Neutron Rev Share, Osmosis Token Migration

Phase 2 will focus on moving the Safety Fund and changing its fee denom as well as directing 10% protocol revenue towards Neutron Foundation. Additionally updating the MARS token on Osmosis Mars Outpost

• Migrate the safety fund asset to noble USDC
• Route 10% of protocol revenue to joint Neutron & Mars BORG as per MRC-67
• Migrate MARS IBC Token on Osmosis to new Neutron IBC MARS token

Phase 3: Contract Ownership Transferred to DAODAO on Neutron

Phase 3 will remove signaling voting, handing over full control of the Neutron Mars Outposts contracts to DAODAO gov

• Update Neutron contracts’ ownership to the DAODAO governance address
• Introduce borgs (using DAODAO’s ‘subDAO’ functionality) to:
  • Control “minimal user risk” asset parameters such as max/Liq LTV, deposit cap, and Open Interest Caps without requiring a governance process/proposals
  • Trigger emergency actions (e.g., disable borrows)

Phase 4: Contract Ownership Transferred to DAODAO on Osmosis Using Polytone

• Update Osmosis contracts’ ownership to the ICA/Polytone DAODAO governance
• Sub-DAOs wrapped in borgs also applied to Osmosis Mars Outpost

Phase 5 - Move Vesting Positions

Phase 5 involves updating vesting contract positions to be migrated to DAODAO Gov

Phase 6: Mars Hub chain End-Of-Life

In Phase 6 we retire Mars Hub coordinating proper communication with validators, run a validator of last resort with a temporary Grant of 50m MARS and proceed to burn both the Grant and the transmuter pools liquidity on Astroport and Osmosis after 1 year.

• Coordinate communication with Validators/Community for chain shut down
• 50m MARS Community Pool grant to run a validator of last resort for 1 year
• After 1 year, burn the 50m MARS as well as any MARS transmuter pool liquidity on Astroport/Neutron and/or on Osmosis

Phase 7: Additional Tokenomics

• Support both staking rewards and buy & LP
• Offer Perps & Margin Trading transaction fee discounts for Mars Stakers based on tier

Copyright

Copyright and related rights waived via CC0.

Disclaimers/Disclosures

This proposal is being made by Mars Protocol Fondation, a Exempted Limited Guarantee Foundation Company incorporated in the Cayman Islands with Limited Liability. Mars Protocol Foundation and certain of its service providers own MARS tokens and have financial interests related to this proposal. All such entities, service providers, and other related persons may also have financial interests in complementary or competing projects or ecosystems, entities or tokens, including MARS, Osmosis/OSMO and Neutron/NTRN. 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. Mars Protocol Foundation may lack access to all relevant facts or may have failed to give appropriate weighting to available facts. Mars Protocol Foundation is not making any representation, warranty or guarantee regarding the accuracy or completeness of the statements herein, and Mars Protocol Foundation 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.

[buidlbergs]

After the 85million is given to the foundation that leaves 172million MARS in the community fund (257-85). Thats still almost as much as is currently circulating. I think more could be burned or if you have examples of how that much could be spent effectively I’d like to know the ideas.

[Tony]

Several months have passed since the last discussion. We are still discussing the same things to this day. Didn’t anyone raise the topic of burning 500 million in the heated discussion on the Internet?
Why reserve these tokens? Why can’t we do it through buybacks if needed. Where is our profit point? If there is, we can plan for some of it to go into the vault, and when we really need it, use the funds to buy back tokens and distribute the tokens to those who need rewards. In my opinion, this is at least much better than simply rewarding and then selling.
If the goal of core contributors cannot be achieved, will a vote be initiated? Then how about we try to open both options of burning 300 million and burning 500 million at the same time?

[Dohko_01]

Yes - we will be burning more than that. So in the proposal (Phase 6) we are going to be requesting an additional 50m MARS to run a validator of last resort on Mars Hub. This will go on for around a year and then we’ll retire completely Mars Hub, burning the 50m MARS.

So what remains is a bit more than 120m MARS. We intend to use some firepower to incentivize the Perps Counterparty Vault, which will effectively eat into that as well.

Last another good use of the community pool is (as part of Phase 1) propose a POL with NTRN to build Mars Liquidity on NTRN. Some of the liquidity might come from the Community pool as well.

In essence - I suggest let’s wait until we have fully transitioned to DAODAO and the token to Neutron, launched Perps and ran an incentives campaign and added POL to deepen Mars liquidity on-chain with Neutron. Then see how much we have left and if we think it’s too much, propose another burn?

[buidlbergs]

Yeah that sounds reasonable

[tsrai11]

Hi Davide and team

Excellent forum post and very happy that some of the changes I had requested have been included in this forum post. For new contributors here are my original thoughts for tokenomics revamp of Mars x.com

Over all very supportive of the changes but I have few additional queries and suggestions.

Firstly as I said in original post burning tokens from community pool doesnt make much sense other then the marketing hype and pumpamentals. They are in the pool and off market. So what kind of modelling/maths was used to arrive at 300 million token burn? In my original post I had requested we burn tokens from open market and combine them with CP with 10X multiple. For example if we are burning 1K from open market we burn 10K from pool.

Secondly what modelling was used to arrive at proportions for safety fund buy of noble USDC. USDC is backed by USD which is a melting ice cube, I strongly oppose using USDC but instead we should back it with the hardest asset on the planet (BTC). If tether is doing it so should we (follow the best practice). If this idea is too difficult to digest/execute WBTC can be considered and also basket of blue chips (BTC/ETH/SOL). Apologies, I am not a COSMOS maxi.

Thirdly a rigorous thought should be given to buy and LP vs Buy and Burn and deep thought should be given to relative percentages. What models were used to arrive at these proportions

I also strongly oppose using Osmosis supercharged Liquidity pools. If we want to deploy MARS/PAIR we should stick to Astroport PCL pools and or build liquidity across Neutron.

Lastly, the perp fees generated via liquidations should be kept for Mars governance participants. Let me elaborate this. After full migration to Neutron we save substantial operating costs. These costs should be used to develop on chain liquidation engine. These fees generated should never leave Mars. Every penny should go back to Mars governance participants and or contributors that shape the Mars protocol. We should not use third party liquidators. Mars token ultimately should become ultimate store of value and hardest asset on the planet with real utility. Portion/Majority of on chain liquidation fees can be used to further accelerate buys/burns from open market. If implemented Mars token holders will fall in eternal love for the volatile markets.

Overall this is great progress.

[Dohko_01]

Hi Taranjit,

Very good questions! Let me share my view on each:

1. There are a few reasons why burning might make sense. The first one being around holding a good amount in a community pool that we know will never be used (or it is very unlikely to be used). This creates an inflated view of MARS and potentially scares away users and parties interested in holding MARS and participating in Governance. The reason is, of course, it reflects a high FDV, which is truly not reflective of MARS’ real FDV since those tokens will never be used. So why not just burn them and have the FDV be more in line with what it should be?

2. The idea behind the amount to be burned is based on what we need first for short-mid term reasons (as stated in the proposal), and then what is a reasonable cushion that we believe is somewhat conservative to keep in the pool at minimum. And everything else, just burn. This allows us to burn more in the short-mid term future as we realize we don’t really need it, again pushing the FDV to be more in line with its real long-term value.

3. I agree that Buy & LP is important. However, as stated in the Gov proposal Phases, we aim to work with Neutron to add POL, perhaps to deepen a MARS<>NTRN pool on Astroport to accommodate the necessity of more liquidity. Eventually, we’ll implement the Buy & LP, but given roadmap priorities and the complexity of doing this, we believe that with the POL intermediate step, this can wait. It’s also important to note that we expect MARS Protocol Buy volume to increase substantially with the Perps launch. However, until then, implementing a Buy & LP wouldn’t probably add much value. So we should prioritize Perps features and Launch first, then things like Buy & LP. Buy & Burn, on the other hand, is quite simple to implement and can be available at launch, providing incremental value from the get-go.

4. The Osmosis supercharged pool would be just for Osmosis Mars outpost. We are going to need pools on both Osmosis and Neutron, as each outpost requires its own pool. So it’s not an either-or situation, it’s that we need both as per the Phases explanation. However, we could deploy an Astroport PCL built on top of Osmosis supercharged pools. That shouldn’t be a problem.

[tsrai11]

Thanks Davide a lot for detailed repsonses

I want you to think about on chain liquidation engine too. We should not let third parties profit from code base of Mars. Mars token holders should accrue all the value. I propose creating a sink pool. So basically majority of liqudation fees goes to buy Mars from open market and deposit into this sink pool. This sink pool could be used as and when needed via governance. This strategy creates constant bid on Mars buyback without any burning. Thanks for addressing all other comments

[Dohko_01]

Hi Taranjit!

Yes - in the current model Mars Protocol already takes a percentage of the liquidation fee and passes it to Mars stakers as Protocol Revenue. With the move to DAODAO this will feed in the Buy & Burn and Buy & LP. So it’s already part of the model.

Regarding - Mars performing its own liquidations (and therefore capturing 100% of the liquidation fees) - we believe a healthy leverage protocol is one where there is a good balance of investors, traders, market makers and liquidators all working together making the system more efficient. This is very much in line with how other protocols work, where liquidations are left up to third parties. The foundation might decide to run its own liquidation bot as a measure of last resort and open source it for other to improve upon it and make liquidations ideally faster and more efficient. This is a healthy thing as all parties win, Mars protocol captures part of the fee, and 3rd parties help keep the protocol working properly.

Regarding using a sink pool instead of Buy & Burn or Buy & LP, it’s definitely an option to consider. In general at this point that we have quite a bit of Mars left in the Community Pool, it’s probably not the best use since it would make Mars less deflationary.

[tsrai11]

Thanks Davide for all the responses. I have more ideas on liquidation engines but its a Mar(s)athon and not a sprint so I will send them to you directly for long term consideration. Excited to see this proposal on chain and executed. Lets make Mars great again

[Rebel_Defi]

Binance listing and burning! Solid pumpamentals!

I wonder about the choice of USDC.nbl for the safety fund, what about native USDT? Also @tsrai11’s suggestion to use WBTC.axl sounds appealing. Although I guess I don’t know the exact safety fund mechanism.

Burn 300M from community pool, great. Secure runway for Mars Foundation, great. Buy back and burn, the more the better! Also like the POL suggestion with Neutron to deepen MARS liquidity.

Overall fully behind this proposal. While I don’t speak for the entire team at Orbital Command, I imagine we will support this proposal with a YES vote.

[4719]

Very solid proposal overall.
4719 will be supporting this proposal & voting yes.

[Dohko_01]

Hi Rebel_Defi!

Yes - I think it’s a good suggestion to add capabilities for diverse assets in the safety fund. Originally we picked native USDC (Noble) because it is at this point the stable coin with less risk. USDT doesn’t have a lot of liquidity and it’s been somewhat hard to get more. That’s also why USDT caps have been filled on Mars v2 and haven’t been raised since.

In regards to non stable assets, I get the (potential) non-inflationary aspect of it, as well as potential decentralization (although WBTC is not really decentralized) but at this point for simplicity we’d rather keep using just native USDC. Generally the safety fund is used to cover bad debt for users, or potential hacks - so it makes sense to have the asset the minimal amount of risk involved as well lowest volatility. But the again, as we build a certain sizeable supply, I’m in favor of diversifying into other blue chips.