[LAST CALL] Lend ATOM on Mars v2 on Neutron

Change log • 2024-07-19 Created initial post • 2024-08-06 Added Signers of Grant commitee and executable message & additional information about the use of Hydro Summary Lend 200,000 ATOM from the Cosmos Hub community pool on Mars Protocol on Neutron via the AADAO / Hydro committees to create a flywheel for DeFi in the AEZ by lowering borrow rates, attracting users and increasing volumes; whilst generating low-risk yield for the Cosmos Hub without Impermanent Loss. The liquidity export from this proposal will be migrated to Hydro once it is deployed on mainnet (see the section below for more details). Problem Statement • High staking rewards incentivize ATOM holders to stake rather than lend ATOM to credit protocols such as Mars or Umee, leading to shallow supply. • Shallow ATOM supply to borrow leads to high and volatile borrowing rate which prevent passive DeFi products such as leveraged staking vaults from being effective at reasonable scale. • This translates into lower volume through the Cosmos Hub stATOM and stkATOM POL initiatives, which could otherwise be optimized. Objectives • Attract borrower demand to the AEZ by lowering borrowing rates…

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Supporting the leading DeFi leverage suite of the AEZ (since it’s on Neutron) sounds like a sensible idea. This would increase DeFi activity on ATOM, boost activity on Mars, generate more fees from Neutron, and provide more rewards to ATOM stakers, all without realistic risk.

Interesting idea. I’m all for most things that can help with deFi use cases in the AEZ.

I think this could be a good use case for Hydro when it launches.

Also, to be thorough, I think it would be wise to include a section on the risks inherent to this.

With hydro looming I would normally be dubious about such a deal. However improving the defi activity with the AEZ seems useful and on balance probably not worth the delay.

A couple of questions:

Assuming that this generates some revenue what is the intended use of it?

What are the potential risks?

At what point would Mars be sufficiently bootstrapped that the tokens would be returned to the CP?

Good questions, my take:

• I agree with being a good use-case for Hydro. However - given the immediate need for this (less than 2 weeks away from the Drop launch) I think this approach is best
• Risks associated to lending ATOM in Mars are the traditional ones that a Money Market incurs. There are of course smart contract risks (mostly bugs), risk-methodology risks (which could open up economic attacks) and liquidity risks (if utilization is high it might be difficult to withdraw part of it). This are the top ones that come to mind
• Lending ATOM in the Red Bank can result in substantial revenue. This will accrue in the form of ATOM as Borrow APR. Normally it would just accrue and the ATOM position would increase over time as debt is repaid by borrowers. It can be used in any way Governance here deems it appropriate. Either by keeping it in Mars if there is enough demand or returned if Governance so desires
• Re Bootstrapping and Returning: This might be difficult to predict at this point, but I think after a few months post Drop launch it would be good to assess current ATOM utilization and decide base on the current state of things

Lower ATOM borrowing rates could really help to kickstart defi in AEZ. Overall, I support this proposal. Please take my comments in the spirit in which they are intended, constructive criticism.

I think it would be interesting to see how much ATOM this 200K position would become after a 12 month period, so I would like to see the interest being applied to the position, rather than being returned to CP each month, or whatever.

I wonder if it might be worth including some parameters of the type: When lent ATOM on Mars Protocol exceeds 2M ATOM, and borrow utilisation is below 50%, then return the 200K ATOM + accrued interest to CP.

IDK if these numbers / percentages make sense. However I think it’s useful to have an idea of when this sort of POL deal is to be closed off.

Other than that, this seems value accretive to the Cosmos Hub CP, and beneficial to Cosmos defi users.

We applaud the Mars team on their inaugural post on the forum, and wish them the best in their discussions with the community here and any subsequent onchain governance vote. We at the Atom Accelerator DAO (AADAO) have opted to provide custody of the funds through our Grants multisig wallet, since a successful governance vote will not be able to directly send the funds to or interact with the Mars protocol. At AADAO, we dislike multisigs for these purposes. As such, we have provided funding support to both Timewave v1 and v2 - smart contracts that among other tasks, allow for Protocol Owned Liquidity (PoL) to be deployed without needing a “trusted middleman” multisig. With Hub governance recently approving a gov-controlled ICA account on Neutron , we are currently in discussions about migrating funds that we are custoding on behalf of the Hub ( ATOM/stATOM on Astroport Neutron ) to Timewave (now called Valence). This would eliminate the need to have a multisig to exercise the wishes of governance on PoL deals. Valence, however, is not yet able to interact with the Mars protocol. As such, should this proposal be successful, there will be a need for a multisig to custody…

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Great proposal, really well-written, detailed, and definitely looks to be a great idea to bootstrap Neutron DeFi.

MPF:

How does lending ATOM lower borrowing rates?

Credit protocols such as Mars and Umee balance supply (assets lent) with demand (assets borrowed) by adjusting the cost of borrowing: the higher the percentage of an asset has been borrowed, the more costly loans become.

Can you go into a little detail about what the current interest rate parameters for ATOM on Neutron are, how little ATOM is currently deposited, and how the current high utilization makes leveraged staking nonviable?

For context, how much ATOM is deposited for lending on the Osmosis outpost of Mars Protocol? This could incentivize borrowers to pay down their loans on Osmosis and open new loans on Neutron if the borrowing rate becomes cheaper on Neutron, right.

Also, have you considered adding a Login with GitHub option to the Mars Protocol discourse forum?

Hi, the current Interest Params for ATOM are as per below:

{
“max_loan_to_value”: “0.74”,
“liquidation_threshold”: “0.75”,
“liquidation_bonus”: “0.1”,
“reserve_factor”: “0.1”,
“interest_rate_model”: {
“optimal_utilization_rate”: “0.8”,
“base”: “0”,
“slope_1”: “0.14”,
“slope_2”: “3”
}

Current utilization on Mars v1 / Neutron is low, however we expect the demand for ATOM to increase significantly with the Drop launch and Mars v2 deployment (which will enable several interesting strategies and potentially boost significantly ATOM demand). The goal of this proposal is to anticipate that and have enough ATOM supply to accomodate these strategies and boost ecosystem growth.

While it is true that some ATOM depositors on Osmosis might be searching for the best rates and move liquidity across to Neutron, I think DeFi markets at this point are not hyper efficient so I wouldn’t necessarily expect this

Thanks for your feedback, @dynstatic. We’ve just enabled the GitHub login option on our forum.

Based on the responses around Hydro and Valance I would like see a financial performance report on a quarterly basis until the funds are returned to the CP. I think this moves us towards are more accountable position without perpetual delaying this.

Just come here to say I appreciate all efforts Mars is doing right now to reform itself and found a better way. I have also read the roadmap on your forum and the decision seems appropriate (shut down of the chain and complete migration to DAODAO and Neutron.).

Greed and pride would prevent many teams to pursue such changes.

At Informal, we’re developing Hydro specifically to provide projects like Mars an easier, faster and more efficient access to the Cosmos Hub community pool funds. One of Hydro’s goals is to eliminate the need for ad hoc governance proposals such as this one. Hydro is beneficial to projects like Mars in that they no longer have to prepare and socialize a forum prop, make guesses around acceptable amount of liquidity exports, set up a new multi-sig and many other such tedious steps. All that comes with a major risk of the proposal ultimately being rejected. Hydro is also fair to the Cosmos Hub community in that it ensures a remuneration for the exports through the distribution of tributes (bids) from projects to voters. With the Hydro committee overseeing the exports, everything is tightly monitored, which reduces the risk of losing funds. Hydro is already deployed on the Neutron testnet and has undergone an audit from Oak security. We’re currently finishing a front-end interface for voters and aiming to launch in the next 4-6 weeks. The Hydro timeline is not far apart from the timeline of this proposal since a governance proposal usually stays 2 weeks on the forum and 2 weeks…

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With the Hydro launch expected in 4-6 weeks, Informal Systems validator will be voting NO on this proposal. These community pool spend proposals do not make immediate sense when projects can utilize the fair, secure, and simplified way to access these funds that will soon be available.

On behalf of the PRO Delegators’ validator team, we will vote NO to this proposal, not due to any reservations about the proposal’s potential benefits to the ecosystem, but rather because the impending deployment of Hydro aligns with the objectives of this request. We must oppose any similar liquidity requests outside of this scope. We encourage the renewal of your proposition upon Hydro’s platform release.

Thank you for your feedback and for sharing the perspective of the PRO Delegators’ validator team. We appreciate your support for the overall objectives of enhancing the ecosystem. The updated proposal (see changelog) was created in alignment with Hydro. Regarding the timing and alignment with Hydro’s deployment, we believe that initiating this process now is crucial for several reasons: • By lending 200,000 ATOM through Mars Protocol now, we can immediately start lowering borrowing rates and attracting users, which will generate early momentum and liquidity for the AEZ. This proactive approach ensures we don’t miss out on valuable DeFi opportunities in the interim period before Hydro’s launch. • Upon Hydro’s mainnet deployment, the proposal outlines a clear transition plan. The 200,000 ATOM will be transferred by the AADAO multisig to the Hydro committee multisig. This ensures that the liquidity can seamlessly integrate into Hydro’s platform, maintaining alignment with its objectives while leveraging the early benefits from Mars Protocol. • The proposal ensures that the community retains control over the funds through a multisig DAO, with a structured process for…

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I didn’t see anywhere in the proposal the terms of the loan, interest rate, etc.

MPF: Upon Hydro’s mainnet deployment, the proposal outlines a clear transition plan. The 200,000 ATOM will be transferred by the AADAO multisig to the Hydro committee multisig. This ensures that the liquidity can seamlessly integrate into Hydro’s platform, maintaining alignment with its objectives while leveraging the early benefits from Mars Protocol. Thank you for you considering the feedback. Our primary concern was the lack of clarity regarding the transition to Hydro. Your recent proposal update has addressed this particular point. There was also a second aspect that we considered to lean toward changing our vote, we noted Hydro has switched plans to support to all LSM share, which the Informal team said it would extend the delivery by a few weeks. ATOM Wars: Re-routing PoL deployments through Hydro However, based on community feedback, we have now prioritized LSM integration. We anticipate that this change will cause a few weeks’ delay. This extended time horizon combined with the immediate launch of DROP, could indeed support demand for immediate liquidity. This further support the argument to deploy now while ensuring a smooth migration when…

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