August 1, 2023
Mars Protocol was engineered to be modular – deploying anywhere and everywhere there’s a need for borrowing and lending. With its hub-and-outpost model, Mars’ own chain, Mars Hub, serves as the coordinating hub or Mission Control. Outposts can then be established throughout the Cosmos and use IBC to maintain communication with the hub.
Six months ago, Mars established its first outpost on Osmosis. Today, the protocol truly goes multichain with the launch of its second outpost on Neutron. As Neutron’s first-ever credit protocol, astronauts everywhere can now deposit crypto for yield and use those deposits as collateral to borrow additional tokens.
It represents a great leap forward in the evolution of Mars and Neutron.
For Mars, it validates the protocol’s hub-and-outpost architecture and creates a new source of fee flows for both stakers and the protocol’s Safety Fund as shown below.
For Neutron, the Red Bank establishes a vital credit primitive and key DeFi building block on the newly-launched chain. Purpose-built for cross-chain smart contracts, Neutron is the first interchain-security consumer chain to be secured by the ~$2.5b staked ATOM on the Cosmos Hub.
Neutron’s architecture is also optimized for permissionless interchain queries and accounts. This makes it easy for devs to deploy dapps on Cosmos without needing to launch their own appchains. And, as explored below, Neutron’s well-positioned to become a hub for liquid staking derivative (LSD) activity in the Cosmos.
Pending approval by the Martian Council, the Red Bank could add support for key LSDs and radically improve capital efficiency for LSD holders.
In the sections below, we’ll explore how to make your first deposit in the Red Bank on Neutron. Then, we’ll dive into how Neutron and Mars could unlock the Cosmos’ full potential with LSDs.
Three tokens are currently available for borrowing and lending on Neutron:
Initial deposit caps apply as shown below.
Follow these steps to make your first deposit:
Once you’ve made a deposit, you can optionally use it as collateral to borrow other assets from the Red Bank. If you elect to borrow, ensure your loan-to-value (LTV) ratio stays within governance-determined safety levels (shown in the image above) to avoid liquidation.
Mars on Neutron could change the future of the Cosmos. To date, the growth of DeFi on Cosmos has been limited in part by high staking yields on Cosmos appchains. When you stake most tokens in the Cosmos (including MARS), you receive a reward in the form of additional tokens.
There’s a tradeoff, though. Your staked tokens become illiquid. That means tokenholders face a choice. They can:
The higher the staking yield on a particular token, the harder it is for automated market makers (AMMs), credit protocols like Mars and other DeFi dapps to entice token holders to use their dapps.
For example, the current staking rate for ATOM is ~21%. That yield (~21%) could be described as ATOM’s “hurdle rate.” That’s because other protocols need to offer yields higher than 21% in order to entice ATOM holders away from staking.
This is particularly important to a credit protocol like Mars because it makes it hard to attract deposits. That’s changing, though, as protocols like Stride allow users to get the best of both worlds.
As a liquid staking derivative or “LSD” protocol, Stride lets users deposit ATOM to earn a staking yield while also withdrawing a liquid version of their staked ATOM via stATOM. Users can then take that stATOM and deposit it in Mars as “collateral” to borrow other tokens. Indeed, more than $1 million in stATOM has already been deposited on Mars’ Osmosis Outpost.
That represents a huge gain in capital efficiency and will likely be more important to Mars’ adoption as stTokens become more common. Neutron could supercharge LSD adoption in the Cosmos as well.
Lido Finance, which is currently the single-largest dapp in crypto by TVL (with more than $14 billion locked on Ethereum), plans to offer liquid staking in the Cosmos ecosystem and recently proposed a framework to deploy a cross-chain implementation of Lido on Neutron. The proposed design would enable users to instantly stake with Lido on any onboarded zone without the need to bridge and by using a single, unified interface.
With Lido LSDs and existing LSDs from Stride, which can be IBC’d across appchains, the Martian Council could explore adding support for LSDs to the Red Bank. That would give LSD holders the ability to deposit and borrow against their LSD tokens – dramatically improving their capital efficiency.
As LSD adoption grows within the Cosmos, remember they do come with associated risks including smart contract risk, slashing of mismanaged or malicious validators and pricing/liquidity risks for LSDs relative to the base asset.
In spite of these risks, LSDs have become the dominant DeFi primitive on Ethereum. LSDs will likely dominate the Cosmos, too, and Mars and Neutron are well-positioned to serve LSD holders.
Today’s deployment should quickly test market demand for credit on Neutron. After a successful track record of operation, the Martian Council could explore rewarding depositors with MARS rewards as the still-nascent DeFi ecosystem on Neutron matures. The Council could also explore deploying advanced Mars features including:
Already live on Osmosis, Mars Farm vaults offer automated leveraged yield farming strategies. With them, farmers can use their collateral to borrow assets from the Red Bank and have them automatically deployed in Osmosis liquidity pools. All farming rewards are automatically harvested and used to compound LP positions.
Mars v2’s upcoming credit accounts create a new DeFi primitive dubbed “Rovers.” With the right integrations and approval by governance, you could launch a rover to engage in virtually every activity you might on a centralized exchange: spot trading, margin trading, LPing, lending and borrowing – all in a single decentralized credit account with a single liquidation point, and all represented by a transferable NFT. Best of all, every position in a rover can be cross-margined, which allows even more capital efficiency than you can get on the world’s leading centralized exchanges.
Any explorer who makes a Red Bank deposit on Neutron within 48 hours (extended from the initially-announced 24 hours) of the publication of this article will qualify for a free NFT Badge airdrop to commemorate the launch. Show the galaxy you were there for the rise of Mars on Neutron. Voyage to neutron.marsprotocol.io to begin.
The future awaits.
*The market risk methodology provided by the Mars Risk Framework couldn’t be applied to NTRN given the asset’s nascency. As a result, the Council elected to apply the framework’s recommendations for the lowest tier of assets. As the volatility profile of NTRN is established over time, the Martian Council could elect to raise NTRN’s deposit cap and LTV parameters.
Remember, Cosmos, Neutron, Osmosis and Mars are experimental technologies. This article does not constitute investment advice and is subject to and limited by the Mars disclaimers, which you should review before interacting with the protocol.