#19 Mars Protocol

Powerful credit tool for leverage trading + yield farming on cosmos

2lambroz.eth 🐑 @2lambro

#19 @mars_protocol, Powerful credit tool for leverage trading + yield farming on @cosmos In this thread 1. TLDR of Mars protocol 2. How does it work 3. Value Capture 4. Opportunities & Summary #IBCGang #CosmosEcosystem #defi

#19 Mars Protocol

Powerful credit tool for leverage trading + yield farming on cosmos

In this thread

1. TLDR of Mars protocol

2. How does it work

3. Value Capture

4. Opportunities & Summary

TLDR

Mars protocol is a lending protocol that offers over collateralized & contract to contract lending for leverage trading & yield farming strategies.

How does it work?

Mars protocol has 3 primary components

• The red bank

• The fields of mars

• The martian council

It has 4 participants

• Lenders

• Borrowers ( over collateralized )

• Borrowers ( contract2contract-based )

• Martian Council

The red bank offers 2 type of loan to the two type of borrowers, collateralized & contract based loans

Collateralised borrowing

Basically same as aave/compound, it is a non-custodial over collateralised borrowing, users can borrow assets listed on red bank using whitelisted asset as collateral

Contract2contract base borrowing

It simple terms, contract 2 contract is over collateralized loans with high loan to value but it’s safe because the collateral + the loaned position are held by “red bank” and held as part of the collateral as well. Thus avoiding bad debt & making it safe for lenders. This loans are on whitelisted DeFi strategies, such as OSMO,axlUSDC LP pair

How does liquidation work?

Liquidations follow a multi-step process:

1. A third-party liquidator identify an account that has a health factor below 1.

2. This liquidator identifies a debt asset they wish to pay back on behalf of an account.

3. This liquidator also identifies the collateral asset they wish to receive.

4. The liquidator pays back an arbitrary amount of the user’s debt, up to the close factor (i.e. if the close factor is 50%, liquidator can only repay up to 50% of the debt in a single transaction).

5. The liquidator receives a portion of the user’s collateral equal to the debt repaid and a liquidation bonus

How does interest rate model work

TLDR they are using the battle test standard two-slope interest rate model from Aave & Compound

Rover Credit Accounts

Mars V2 introduced rover credit accounts, allowing borrowers to also be lendings, more assets can be pooled and deployed to productive uses enabling use case such as margin trading & leverage yield farming.

TLDR of how credit account works

Credit accounts hold a user’s assets and compute a health factor based on the value and riskiness of the user’s positions, as determined by on-chain data and the Martian Council

Value Capture - simple! one graph tells u everything

Summary & opportunities

Lending has always been the core building blocks of all defi and leveraging. Mars’s move on targeting lending markets & leverage trading is smart.

There still hasn't been one very dominant player in cosmos money markets so far ( from what i know ) i suspect it's caused because of the high staking rate of POS making it too expensive to borrow or not enough incentive to lend.

I’d keep an eye on what strategy they whitelist for contract2contract, a good leverage yield farm might be catalyst to break this problem, capturing significant TVL

One of problem in perpetual trading is the expensive funding rate, you can typically leverage manually via aave/compound, however it is not very user friendly and requires lots of monitoring work. If Mars can make it easier for users to do it automatically via red bank without worrying of spiking interest rates in volatile times. Overall Mars is not just another money market. if they execute well, they can be the first dominant player as a leverage trading platform with backing & money market in the cosmos ecosystem.

Thank you for reading