The Osmosis community pool just passed 1.5M in USDC.
Mars Protocol’s Osmosis deployment currently has around 6M of USDC deposited, which is earning around 8.1% APY from loans.
To further bootstrap economic activity on Osmosis and earn a yield on Community Pool holdings, I propose depositing 1M USDC to Mars.
This increases the amount of USDC available for borrowing on Osmosis and guarantees a floor level of borrowable stable liquidity with a longer duration before withdrawal.
This deposit would not be used to leverage community pool holdings. Since the deposit is in stablecoins, any position would be short, and governance’s response time is too long to handle the risk associated with such a position.
Credit positions can be transferred between accounts, allowing the governance module to hold this position and later interact with it rather than the community pool.
Alternatively, the loan could be tokenized using a wrapper contract, transferring these representative tokens directly to the community pool.
Membrane has just done a similar wrapper to tokenize Mars deposits to allow collateralization against its stable coin.
While this may initially lower yield for existing depositors, lending yield often reaches an equilibrium of rates at which people are willing to lend or borrow.
I am looking for feedback on this idea before developing further. Generally, I think we should be maintaining the community pool USDC as an insurance fund for the protocol. However, having this also be useful and earning while maintaining value is worth exploring.
One relevant risk factor here is that this deposit would effectively expose the community pool USDC to the risks of every deposit asset supported by Mars. If an exploit of an underlying collateral asset like stOSMO / milkTIA / etc leads to bad debt, that loss will be socialized amongst all depositors, the OCP included. I don’t see this as incredibly likely given Mars’ conservative risk framework and the strength of the supported deposit assets, but it’s always possible.
Smart contract risk for Mars itself is also a relevant consideration.
Personally view the yield opportunity for the community pool as not extremely attractive (likely $40k - $80k USD per year for the protocol) when compared with the risks.
Is it fair to say the stimulus to borrow activity is the primary benefit here? If so, is the amount significant enough to provide a meaningful stimulus to activity on Osmosis?
One benefit is having more liquid lending/borrowing markets on Osmosis in general - i.e. more predictable rates.
These could then be tapped in to by more protocols needing reliable rates or flash liquidity.
Right now we have $6m USDC deposited into the Osmosis Mars Outpost so this would be a substantial increase.
Risk, particularly smart contract risk, is why I wasn’t proposing depositing the full amount here. Mars is very conservative with their parameters as you say so contract risk is the big question. Their track record is pristine though as far as I am aware.
I am happy to start off small too; maybe we could say that X% maximum of the community pool stables could be held in Mars?
Yeah, plus Mars’ contracts have been battle tested on Osmosis for nearly 2 years (1 year for Mars v2). I’m not too worried about these risks given their track record.
Not opposed to depositing the $1m proposed amount either. I just want to make sure we understand the “why,” and that the reason for doing so is compelling since the risks do exist.
Cosmos Hub did something similar with CP ATOM. Have we looked at the impact of that on the rate environment? I’m sitting in an airport rn or i would haha.
I can look later, but i recall initial borrower / lender reactions leaning negative (could have changed since then though as the market adjusted)
I’m in favor of depositing community pool USDC into Mars! (Note, I would not be in favor of community pool Osmo, which is the comparable cosmos hub proposal)
My reasoning for this:
Helps bootstrap more leverage activity. I do think our biggest issue with leverage on Osmosis is really UI layer though. (Mars UI is very hard to onboard onto, and does not yet support osmosis native limit orders. I like the UI once your onboarded onto it)
Once fast bridging launches, I want it to be easier for actors to “front” USDC on Osmosis to facilitate faster txs. The ideal is to have community pool owned liquidity, but that likely takes more time. So increased borrow ability is good
I generally think that community pool funds being targetted for a few areas:
On behalf of the PRO Delegators’ validator team, we fully support this proposal and are prepared to cast a positive vote, provided the proposer deems it viable for on-chain submission.
Our risk management review for this deployment reveals minimal risks, and we believe it would foster a stronger alignment between the two projects, benefiting both parties in a mutually advantageous way.
Have you done the math on how a relatively huge deposit of USDC will impact the lending APY? It’s not going to earn anywhere near the 8% that you’re pitching.
All that USDC in the community pool (and matching OSMO) would likely get a better return in an OSMO-USDC pool, which would also server DEX users. ie, Protocol owned liquidity is a better path for community funds rather than schemes that aren’t devised by professional money managers/apps.
What do I mean by apps? I mean smart contracts that constantly monitor the best place to earn yield on Redbank on Osmosis, Neutron, or wherever else IBC can easily deposit/withdraw funds. Think https://yearn.fi/ for the Cosmos ecosystem.
It’s less about the return and more about ensuring liquidity is available to allow easy access to USDC borrowing.
The APY would drop at first as the curve fell - calculating that it would drop to 5.7% from adding a million USDC.
However, lending markets are often about rate arbitrage, which may lead to more borrowing and the same utilization rate/APY return.
It would be interesting to see a historical record for Mars deposits vs. lending to confirm this. If nobody else has one of these available, I’ll pull this information before any proposal is finalized.
Something like Yearn.fi would be really useful, but there are limited stable deployment opportunities in the Cosmos at the moment so I doubt one will emerge for this purpose.
Thanks for the result on APY when adding 1M USDC liquidity. Your own calculation shows that the return is not as juicy as you originally posted, which is significant in people’s assessment of the proposal.
The “If you build it, they will come.” idea translated into providing liquidity only works in the movies. I mean, just because you add liquidity doesn’t mean that it will be used.
UX, formerly Umee, provides better rates than Redbank for lending and borrowing, so why not provide the liquidity there? (Mars treats Osmosis as a second-class citizen to Neutron, don’t forget.)
Far more effective: Use the USDC for marketing to get liquidity from other ecosystems. express.noble.xyz is awesome. How do you coax Solana users to Osmosis? Solana blind signing is seriously scary - you literally have no idea what you’re signing. Osmosis doesn’t have that problem.
We support the initiative of lending 1M $USDC on Mars.
While the yield that could be earned by the position is considerably low, I think having deep $USDC liquidity with competitive borrow rates are key to propel DeFi activity on Osmosis:
Deeper, more affordable liquidity → Higher DeFi activity → More taker fees
On top of this, I would like to stress that on a lot of occassions we try to avoid betting on a single protocol, but here we trust 1 protocol with a huge lot of funding from our CP.
