- At launch, ATOM, axlUSDC and OSMO will be available for over-collateralized borrowing and lending on Osmosis, enabling manual leverage and shorting
- As soon as it is enabled by Mars governance, the Outpost will enable under-collateralized lending and leveraged yield farming vaults
- To kickstart adoption, depositors will be eligible for MARS rewards for 30 days
On Tuesday, February 07, Mars Protocol will deploy its Red Bank Outpost on Osmosis, bringing borrowing and lending to the deepest-liquidity, highest-volume DEX in Cosmos, where it will jumpstart interchain Defi over IBC, the inter-blockchain communication protocol.
Once the Red Bank is live on Osmosis, users can go to marsprotocol.io, connect their wallets, and deposit assets as collateral or simply to earn yield.
During the initial launch phase, the Red Bank Outpost will function similarly to Compound and Aave, allowing Osmosis users to lend OSMO, ATOM, and axlUSDC for variable yield, and to take out over-collateralized loans against those assets. For safety, deposits will be limited to 100,000 ATOM, 2.5 million OSMO, and 500,000 USDC until Mars Hub governance raises the caps.
The addition of a lending and credit protocol is the most important Osmosis upgrade since its June 2021 launch, and it represents the first major pay-off of a year’s worth of ecosystem development aimed at making Osmosis a full-service decentralized exchange.
The Red Bank Outpost is a crucial piece of infrastructure for Osmosis Defi. Lending protocols are some of the most powerful and widely adopted applications in decentralized finance, bank-like structures that hold the majority of the ecosystem’s capital. Users deposit such massive sums with them – directly and through intermediating protocols like strategy vaults – because they offer massive increases in capital efficiency and leverage. Further, additional protocols and primitives can be built on top of them that allow risk and yield to be traded, held, and hedged over time with ever-greater optionality and complexity.
The Osmosis thesis is that the future of finance belongs not to opaque, easily corruptible centralized exchanges, but to decentralized appchains that can surpass their smooth user experience and wide range of financial products. The full decentralized trading suite includes not just the interchain swaps of the original Osmosis AMM, but also lending, strategy vaults, NFTs, and the full range of financial derivatives, as well as ways to hold, hedge, and trade with the full range of optionality. All this with a smooth, integrated UX, full-featured wallets and fiat on- and off-ramps, and perhaps most importantly, safety, privacy, and transparent auditability.
To that end, at the beginning of 2022, the DAO commissioned a special integration of CosmWasm (the interchain smart contracting platform) from its creators, allowing tight integrations into the chain logic, and letting Osmosis governance choose which teams and contracts can deploy on-chain.
Additionally, Osmosis has been building out tooling for CosmWasm and OsmosJS in order to make it easy for developers to build dApps on Osmosis or have their front-ends access the chain.
The process has been a success, with the number of developers having increased exponentially since the beginning of the year, sped up by the addition of a number of exiled CosmWasm teams from the Terra ecosystem.
Similarly, AMM features like stableswap, TokenFactory, and TWAP.) (time-weighted average price feed) have been developed to allow for better, more robust trading. Recently, Osmosis TWAP was upgraded to geometric mean (GM) TWAP, increasing the efficiency of pricing ticks on the upcoming concentrated liquidity pools and further ensuring that Osmosis liquidity pools are resistant to manipulation.
And now, after all this preparation, and seven months after the introduction of Mars v2, Mars Protocol is launching its first (and only, for now) Red Bank Outpost on Osmosis. This will bring an entirely new primitive to the interchain, and signaling the opening of Osmosis to interchain Defi, with many other developer teams soon launching their own protocols that will make use of it: vaults, ETFs, derivatives, and more.
Hub and Outpost: Rather than subordinating itself to the protocols on which it deploys, Mars has opted to retain its sovereignty through a “hub and outpost” model. This arrangement involves Mars launching its own appchain, the Mars Hub, to serve as the governor and fee-collector for its liquidity outposts.The Hub is responsible for setting liquidation thresholds, collateral ratios, fees, and more. It also handles upgrading Outpost capabilities and making arrangements with potential future Outpost locations.
Manual Leverage, Shorting, and Liquidations: Even with over-collateralized lending, users will have access to moderate leverage by using a simple loop. To go levered long OSMO, for instance, a user would acquire OSMO, deposit it as collateral, and borrow stablecoins against it. These stablecoins could be sold for more OSMO, which could be deposited as additional collateral to be borrowed against, and so on. Total leverage is limited by fees, the collateralization ratio, and the inability to unwind multiple loops quickly.
Users can manually short an asset with the same strategy, this time lending stablecoins and borrowing the volatile asset. For example, a user could deposit 1000 USDC and borrow 50 ATOM, then sell the ATOM for more USDC, which could then be looped for more leverage. If ATOM went down, the user would be able to buy the 50 ATOM (or more, if levered) and repay the loan for a profit. If ATOM instead went up, the health factor of the loan would decline, and the user would have to either deposit more collateral to keep the loan healthy, repay the debt for a loss, or accept liquidation.
This demonstrates that these levered positions can be risky if the market moves against them. Users must always be aware of the health factor of their loans, or risk having their collateral liquidated. Fortunately, Red Bank liquidations are not all-or-nothing, but gradual. Third-party liquidators cannot snipe the entire collateral of a barely underwater loan, but rather can only pay the portion of the debt that brings the health factor up to an acceptable level. This allows users more flexibility and time in managing their positions and avoiding catastrophic loss.
Credit: In the near future, once approved by Mars Hub governance, the Red Bank Outpost will also offer credit. Many Defi protocols have tried to develop under-collateralized borrowing over the years, but have always failed, since there is no real-world way to force payments from an underwater borrower. Thus, borrowers could take out risky loans worth more than their collateral and simply exit the protocol with more than they entered, with little incentive to return the loan. Mars gets around this by offering credit only within a restricted environment – a financial NFT that must remain in-protocol, and that only has access to governance-whitelisted strategies, each of which has its own variable collateralization ratios and liquidation thresholds.
This is quite an exciting strategy that will further increase the capital efficiency of the ecosystem. Borrowers will have more powerful options, and lenders should be able to collect higher sustainable yields.
Leveraged Yield Farming: After a two week initial launch period, the Mars Protocol community can activate the Fields of Mars on-chain. The Fields of Mars will enable leveraged yield farming (LYF) vaults for token-pairs.
At first, each LYF position will be collateralized separately. Later, cross-collateralized credit accounts, also known as Rovers, can be enabled. Rovers will give Osmosis users an experience far closer to one a centralized exchange. Well known features such as margin trading and spot trading will be a few mouse clicks away. Users simply have to have a credit account on Osmosis, which will be represented by a NFT.
Be sure to read the Mars v2 whitepaper or watch this preview video now!
With Mars and Osmosis working together, users will have the CeFi trading experience w/ all the security and perks of a DeFi platform. Join us on this adventure and get critical updates by following Osmosis and Mars on Twitter!
Osmosis is the premier DEX of the Cosmos Ecosystem. Osmosis also offers non-IBC assets from the Ethereum and Polkadot Ecosystems. Hosting hundreds of token pairs and millions of dollars in liquidity, users can find a vast array of treasures deep within the pools of Osmosis. Osmosis is a key innovator in the DeFi landscape, having created its own version of Stableswap and Concentrated Liquidity Pools! They’ve also mixed liquidity w/ security by enabling SuperFluid Staking, which allows users to both provide liquidity and stake their OSMO at the same time!
Mars is a novel interchain credit protocol primitive facilitating non-custodial borrowing and lending for the Cosmos ecosystem and beyond. Its hub and outpost architecture allows Mars to operate on any chain in the Cosmoverse, and enables a new primitive: the Rover. Rovers give their pilots DeFi superpowers to engage in virtually every activity they might encounter on a centralized exchange: spot trading, margin trading, lending and borrowing — all in a single decentralized credit account represented by a transferable NFT. Explore it now at marsprotocol.io or in the Mars v2 Whitepaper.
Remember, Cosmos, 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.