#19 Mars Protocol
Powerful credit tool for leverage trading + yield farming on cosmos
#19 Mars Protocol
Powerful credit tool for leverage trading + yield farming on cosmos
In this thread
TLDR of Mars protocol
How does it work
Value Capture
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:
A third-party liquidator identify an account that has a health factor below 1.
This liquidator identifies a debt asset they wish to pay back on behalf of an account.
This liquidator also identifies the collateral asset they wish to receive.
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).
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