Hello and welcome to The Ether. Today is Tuesday, February 15th 2022. This episode of The Ether is brought to you by Talis. Talis Protocol is the NFT platform for independent artists on Terra. Talis helps to provide artists with the tools and resources needed to transition from traditional arts into the NFT world. With their V1 launch coming soon, Talis will be the place to see real world art reflected on Terra. Be sure to join their Telegram and follow TELUS on Twitter for updates on their roadmap validator and other Talis news. Find your next favorite artist on talis.art. This episode of The Ether is also brought to you by Orbital Command, a community validator on Terra dedicated to educating, expanding, and promoting the LUNAtic community. Visit OC’s What We Do page using the link in the show notes to take advantage of some of their other educational resources including weekly meetups to discuss Terra protocols, strategies, and concepts, the Terra Luna Intel Report on Telegram, and YouTube explainer videos on Terra concepts. You can also support their community efforts by considering them next time you’re delegating or redelegating your LUNA. Find out more at orbitalcommand.io. TerraSpaces appreciates the support from all our sponsors. Today on The Ether we have the Mars Protocol Space hosted by Cephii with Jose Macedo. Let’s take a listen.
Hopefully nobody’s getting too rekt in Prism Protocol. [chuckle] We had a Space this morning covering some of the strategies on that that I went over. So you might want to check out that recording, recapping different possible options on Prism if you guys are interested. Gonna be just a minute, I’m trying to see if Jose will be able to hop on here. Midas are you there? Hey, Sean, how are you? Midas you have the ability to hop on here or no? Just checking to see if you can get speaker… There he is.
Hey, what’s up?
Hey, sorry for the delay. I think you might have missed my apology but I kind of had a… Since I’m a physician, there’s sort of like a series of COVID medical disasters, deaths that happened just now, so I had to deal with that before getting on, I apologize. [chuckle] I didn’t mean to delay, but I’m glad you caught me on DM because I probably would have missed entirely otherwise. Sorry.
No, thank you. Let me just ping him here, Jose. Give me one second, please.
Sure. So what we’re gonna do is we’re gonna chat with Jose and Midas here about Mars. I’ll sort of introduce who Jose is here before he shows up. He’s with Delphi Digital, and he’s involved with the Mars Protocol project. And really, what I wanted to delve into is how Mars Protocol can be useful to you and me as a user of the protocol first and foremost, and then we could get into a little bit of details about whether it’s something we want to do as far as getting involved with the MARS token and things of that nature. So let me add Midas here as co-host. We do have a series of lending protocols coming out where you can borrow money. There’s going to be Edge Protocol, there’s Kinetic Money, there’s of course Anchor Protocol. And we want to get an understanding ultimately of where Mars fits in all of this. And whether are we going to be potentially using some of the strategies for lending and borrowing in conjunction with each other, or is Mars superior in some way to Anchor or whatever. So we’ll sort of go through that with them. I think Jose got thrown for a bit of a loop just because he thought this media was probably a dud. [chuckle] So while we’re waiting any… Now before asking me a bunch of questions about Mars, I know very little so we definitely want to get the guys on to cover that. But any other questions regarding anything else Terra for a minute while we wait? Feel free to… CryptoFib, any questions or anything while we’re waiting? Or SolHouseCat, for that matter? There he is.
Hey, guys. Yeah I’d be happy to ask a question real fast if there’s time. Thank you so much for the opportunity and allowing me to speak. So as it stands, I really hold about 10% of my entire portfolio in LUNA. And I’m kind of just staking, collecting rewards. And I have a very long term time horizon. My question really is, what could I be doing to maybe be potentially more aggressive? Or what could I be doing to capitalize on gains? Maybe specifically in the LUNA NFT ecosystem? Because the majority of my focus is spent on NFTs and I would love to get more involved in the LUNA NFT space. I do know that is not necessarily the focus of this chat, though. So any remarks you may have about it, I would very much appreciate it.
Definitely not my area of expertise, I would say. But we could definitely do something about that a bit later. Let me just go ahead and hop on with Jose, since he’s here. My apologies, Jose, are you there?
José Maria Macedo 6:00
Yeah. Sorry about being late. I’m a physician and there was just a bunch of deaths this morning regarding COVID. So I was dealing with all those issues, and got late.
José Maria Macedo 6:09
Sounds like a valid reason to be late, to be fair.
Yeah, my background is in pulmonary critical care. So that’s how I got… Anyway, I’ve got a crazy schedule, but sorry about that. But yes, thanks for coming on. I’m glad we were able to still make it together. And basically, I wanted to start out with… I kind of introduced you before you came on here, that you worked for Delphi, and you’re with Mars. And Midas is here. And we were going to chat about really the… I think first and foremost, how Mars Protocol can be useful to the Terra community, just in terms of the utility of the protocol, maybe you can begin by introducing how we might benefit from it.
José Maria Macedo 6:59
Yeah. Thanks. Thanks for having me. So, just to quickly clarify, I’m with Delphi Labs, and we’re contributors to Mars Protocol, alongside WE3, Terraform Labs, and a few other independent contributors as well. And so the way Mars can be useful to Terra, so first of all, Mars will enable leverage on any asset. So whereas Anchor enables you to… With kind of simple money market functionality enables you to leverage on proof of stake assets bETH, and bLUNA, Mars will enable you to leverage any asset that’s sort of approved by governance, by the Martian council. So that in itself is… Kind of opens up some possibilities. But the part that I think we’re most excited about is what’s called the smart contract lending. So enabling credit lines for dApps and developers that want to embed leverage into their use cases. And so the first one that Mars is launching with is the levered yield farming, right, where you’ll be able to LP starting with LUNA-UST, MIR-UST, and ANC-UST, and add leverage to that. So it’d be able to 2x your exposure, 2x your yield, and obviously have some risk alongside that. But the generalizable kind of primitive is that Mars enables credit lines to a smart contract, where as long as the smart contract specifies what it’s going to do, has some collateral in it that Mars can kind of assess and underwrite, you can do this smart contract lending, which previously was called uncollateralized, but it’s not quite uncollateralized, it’s just that the collateral sits in the smart contract, right. Your LP share, in the case of leverage yield farming, is your collateral. And this is just the first use case of what can be done. I think there’s things that can be done with strategies like Nexus to sort of farm Anchor on leverage, and kind of the possibilities are limitless The only limit is sort of what can be expressed with a smart contract and… Liquid tokenized collateral that can be liquidated.
Let me ask you this, Jose, because I was starting trying to dream up how this might be, say, different from Anchor. So let’s start with LUNA as a collateral. So if we are using a LUNA as a collateral, so what kind of LTV and maybe what kind of cost to borrow might we expect? And you may not know the answer to that yet. So I’m just curious what division there is.
José Maria Macedo 9:36
Yeah, I actually don’t know off the top of my head what the LUNA LTV is I think it’s been announced but I don’t know off the top of my head. In terms of cost to borrow, I suspect that the cost to borrow UST will be fairly low especially to start with because of the Lockdrop, right. The Lockdrop Mars is gonna distribute 6% of its supply to users who come in and deposit UST and become founding depositors of the Red Bank. So that’s going to create a big UST pool that’s then going to be loaned out both to people who want leverage on the money market side, but also to smart contracts, starting with the Fields of Mars, which is the leverage to farming I talked about, but I think there’s a few applications that have already shown interest in applying for credit lines from governance. So I think the rates on UST will start off fairly low.
José Maria Macedo 10:30
The one, I guess, caveat to that is if you have these degen box strategies start emerging on top of Mars, which I think is kind of inevitable, that if Mars accepts aUST as collateral, then you can do the degen box, right. Where you deposit aUST, borrow UST, and then deposit that into Anchor, get the aUST back into Mars, borrow more UST, and kind of loop that indefinitely, then you’ll see Mars rates probably get arbed to the Anchor rate, right. So that strategy no longer profitable. So that’s kind of the one caveat. I’m not sure to what extent that’s good or not, be curious to hear what everyone else thinks. But yeah, I suspect the rates will be low to start with, and then kind of creep up.
So the concept for Mars is essentially that the cost to borrow is going to essentially vary based on market demand and conditions, right. It’s not intended to be any… When you go into it, is it going to be like Anchor where the cost of borrow may change as you’re borrowing, like a variable APR? Is that what we’re thinking is going to happen?
José Maria Macedo 11:43
Yeah, it’s pretty similar to Anchor and to other money markets that are… Or credit protocols that you might be used to where there’s this slope, this kinked curve, which targets an optimal utilization rate and has a corresponding interest rate there. And so the interest rate varies depending on the utilization of the pool. So if there’s more borrower demand, the interest rate will go up. And if there’s more supply than demand, then interest rate will come down. And so initially, there’s gonna be a lot of supply because of the Lockdrop, right, and so rates are likely to be low. And then as more and more applications get onboarded into credit lines, and as more and more people want to lever up in the Red Bank, rates will likely come up over time. We did play around with or… Delphi Labs released a paper on this dynamic interest rate model, which we’re still very interested in exploring, but just because the model relies on supply and demand being free, in terms of being able to react to changes in the interest rate. But because of the Lockdrop, there’s gonna be a bunch of supply just locked. And then also, on the borrow side, there’s going to be limits to start with, just to keep things safe in terms of the amount you can borrow to leverage liquidity provide, relative to the size of the pool, because you don’t want like cascading liquidations. And so because of that situation where supply is… The people, they’re in the Lockdrop, no matter how low the rates are, they can’t exit. And so it kind of made more sense to wait to try the dynamic interest rate model once those conditions are kind of… Once both of those are more reactive if that makes sense.
Okay, got it. Yeah. Yeah. So now, with the proof of stake assets, like LUNA, for example, is the protocol gonna do something similar to Anchor claiming the yield from that, or is this different?
José Maria Macedo 13:44
Yes, I think initially, the asset that’s accepted is LUNA. So that won’t have any proof of stake rewards, it’ll be the unstaked version of LUNA. Which is why I don’t suspect that pool will be very big, because obviously LUNA has a high opportunity cost in terms of staking or even providing liquidity in LUNA-UST So, yeah, I’m not sure that pool will be very big, but I think Lido is very interested in… Or have posted about being very interested in listing stLUNA, which would then allow leverage on a staked version of LUNA, and I think Stader also has plans to… Has already run LunaX through the open source risk framework that Mars published. So there should be two options of staked collateral that’s earning yield that you’d be able to lever on top.
Perfect, yeah, so just for everyone… Make sure that understands what he just said. He’s basically saying that it doesn’t necessarily make sense to use LUNA there just because you’re losing the staking yield, and stLUNA from Lido and LunaX from Stader both are autocompounding primitives. And therefore, while you’re borrowing off of it, at least you’re getting the staking growth in the background simultaneously. So it sort of lowers your cost to borrow, or at least it lowers your opportunity cost in terms of the loss of those staking yield. So that makes sense. So, what other collateral assets, some big ones, do you foresee might be popular in the future as far as… Let’s say we have a Bitcoin primitive, or let’s say we have an ATOM token, or whatever, what kind of future collaterals do you envision being important to Mars?
José Maria Macedo 15:41
Yeah, I think that the collateral on the Red Bank’s side, all those assets make sense. ANC, MIR, ATOM if and when it comes to Terra, Ethereum, potentially some mAssets if governance votes those in, could all make sense. But I guess the place I’m more excited about accepting different parts of collateral is Fields of Mars, because as you… You can basically add leverage to liquidity provision strategies, right. So to start off with, that’ll be Anchor, and a few others, but I think the plan is for different protocols to apply for credit lines and expand that over time. So you can add leverage to all your favorite strategies, whether it’s Nexus Protocol strategies, so for example, farming Anchor, right, by borrowing with your bLUNA, so the nLUNA strategy, you could imagine adding leverage to that, right, where you takes the LUNA as collateral, borrow some UST from the Red Bank, buy mores LUNA, and basically farms more Anchor with that. And obviously that adds risk to your strategy. There’s like liquidation risk suddenly, but strategies like that I think are gonna be really interesting to see how many different ways people can use the UST credit lines to lever and add customizability to different strategies that are being done on on Terra.
José Maria Macedo 17:08
And I think there are a lot of… Yeah, I’ve already heard from a lot of protocols that want to experiment with that. And so that’s kind of the area that I’m more excited about because it’s just a more efficient form of leverage, right, versus the typical kind of Anchor, or traditional money market model where you always have to be over collateralized, right, you always have to put in more bLUNA than the UST you get out. With the Fields of Mars model, that’s not the case, right. You can actually borrow more than what you put in, as long as the assets are sufficiently safe, you can borrow more than what you put in because all the collateral is held in the contract and can be liquidated, right. So does that make sense? That the area that I find more interesting,
So I guess the next question people are gonna have probably is what makes one credit worthy? Is this going to scale how much LTV you can have based on maybe like wallet history, or anything? Or is it just going to be the same for everybody? And where does the trust/trustless piece of this come in?
José Maria Macedo 18:18
Yeah, you actually don’t need any wallet history, credit history, you don’t even need to know anything about the borrower. So all you really need to do is inspect the smart contract and see what it’s doing, what liquidation conditions it’s enforcing and what what collateral it’s using. So just to give an example, let’s say you’re farming ANC-UST, right, and you want to lever that up. So you would put in ANC as collateral, let’s say $100 bucks worth of ANC, and then you’d borrow another 100 UST from the Red Bank, right. Now you’re farming with $200 worth, right, so you’ve doubled your yield. And all that would happen is that there’ll be a margin threshold that has to be maintained so that if Anchor drops below a certain amount, the contract would automatically unwrap your LP shares, it would use the UST to pay back the debt, and then it would sell as much Anchor as needed to pay back the rest of the debt and give you the remainder. So from the perspective of the Red Bank it’s trustless, right, there’s no need to know whether… Yeah.
So in that example, for example, if I’m farming ANC token as an example, does that mean per that contract I can only take leverage and buy additional ANC token or does that mean I could take the borrow and then buy, say, LUNA? What is the…
José Maria Macedo 19:42
That’s a good question.
How does the contract look like and what is the user process? How does that look?
José Maria Macedo 19:49
Yeah, that’s a good question. And this stuff’s hard to explain. So feel free to, yeah, keep asking questions, because, yeah. I think some of the community members are actually better at explaining this than me. But yeah, the leverage from these credit lines is use case specific, right. Because in order to do the under collateralized leverage, or the smart contract leverage, you need to know what the smart contract is doing, because you need to be able to underwrite that. So in the case that you were getting leveraged to farm ANC, that’s all you could do with that leverage, right, and the contract would hold the ANC-UST as collateral so you can’t you can’t move that around either the contract would withhold it and liquidate it, if it drops below the predetermined margin threshold. And like you pointed out before, you could actually have a credit line that just goes leveraged long LUNA, right. So you could have someone that writes a contract that says, “I want to use my LUNA as collateral to borrow… I want to use $100 of LUNA as collateral to borrow $500 of UST, and buy LUNA with it.” And then the contract would hold the $600 worth of LUNA and enforce some liquidation condition, right, so if LUNA drops maybe 10% to be safe, it would liquidate you. And then suddenly you have on chain margin trading, right, enabled by this credit line architecture. And the real key is you can give leverage to anything that can be expressed in a smart contract, and where there’s tokenized collateral in the smart contract that you can liquidate.
So do you first see each type of possible contract having a description with the leverage conditions and all of that jazz? Because obviously, there’s a smart contract, and then there’s the average person showing up to use it, they’d need to know what their conditions are right? For example, on Anchor if I get liquidated because the value of my bLUNA goes down too much, then a certain portion is going to be liquidated to return to my LTV to whatever the safe zone is, so to speak. So everyone’s here who’s been liquidated at Anchor knows what that looks like. Are the liquidation conditions going to be different per contract then? Or do you foresee that being very similar experience for every contract?
José Maria Macedo 22:09
Yeah, so liquidation conditions will definitely vary per contract and per use case. And in terms of UX, the way it’s kind of proceeding to work is that protocols will apply for credit lines from Mars. So for instance, let’s say someone like Apollo, which has these vaults, they could apply for a credit line for their ANC-UST vault, right. And Mars, let’s say would authorize up to $15 million in credit for this vault, because that’s the upper limit in terms of the risk framework of what is safe. And then Apollo would be able to pass on leverage to its users following all the parameters that were approved by Mars. So when Apollo applies to governance, they would write a contract that shows what they’re doing, and also what the margin threshold is that they’re enforcing, and what the liquidation logic is, so what the liquidation bonus is and all of that. And assuming Mars trusts that contract, trust is sort of the wrong word, but just inspects the contract and feels that it’s a risk worth underwriting, it can extend leverage to that contract. And then Apollo can extend leverage to its users who will all be able to use the leverage yield farming, and they’re liquidated according to the parameters in the contract. So obviously, they’ll all have different liquidation points based on when they open the position, but the margin threshold will be the same for everyone.
So in this structure, how does the… Okay, so let’s say, Apollo DAO decides to form some sort of contract, maybe walk through an example of how they would do that, and then do then I go and then participate in that contract that they have submitted then, as an individual user? And then, maybe is the benefit to the protocol versus the benefit to the retail customer who’s using the site?
José Maria Macedo 24:08
Yeah. Okay. So let’s use the example of Apollo. So let’s say Apollo has an ANC-UST vault right now, right, which is an autocompounding vault. If they want to add leverage to that vault, they would apply to the Red Bank for a credit line. In that credit line, they would specify the contract they’re applying for leverage for, so the ANC-UST farming contract, how much the max leverage is per user, so let’s say 2x in this case, what the margin threshold is that they’re enforcing, so what the what the minimum LTV is that they’re enforcing, as well as liquidation bonus and liquidation logic. So all that would be specified in the contract. And then Mars approves the credit line. And so Apollo now has this credit facility from Mars and the advantage there is that first of all, they can boost their TVL, right, because now users can actually lever up their vaults. And also they can do that without having to run their own money market. So they don’t have to bootstrap their own UST pool in order to be able to offer leverage to their farmers so they can just tap into Mars’ UST pool. Now users can go to Apollo, and when they choose to contribute to the ANC-UST vault, they can just do so like normal. So they can just have their spot contribution. Or they can add leverage to that which the UX would be similar to other leverage yield farming another chains, so Alpha Hamora on Ethereum or Alpaca, where you can basically choose to lever up up to 2x, in which case it would do what I said before, so you would borrow UST from Mars, and then lever up your position, and then you would have the liquidation conditions and everything as explained before.
So how in that… So Apollo DAO is the one then levering the extra ANC-UST yield exposure? Their revenue comes from what portion of this then? The benefit to them… What does their profit look like? In order to make a buck, what are they doing exactly? Does that make sense? Like I’m trying to wrap my brain around what’s happening there.
José Maria Macedo 26:21
Yeah, for sure. So, actually, I think Apollo makes money by taking a share of the performance, right, so of the autocompounding. I actually don’t know if that’s the case, or if it’s a management fee. But whichever one it was, it would be higher, right, because let’s say a user was farming with with $100 before now they can farm with $200. So the notional Apollo’s management fee has doubled, or their performance fee has doubled if you’re taking a fee on performance, right. So the advantage to them is that they can have higher TVL and offer more capital efficient farming and leverage to their users.
Got it. Got it. I think I’m figuring out where this is going now. Because you almost have to look at it from the perspective of the protocol or individual supply in the contract. And then you have to look at it from the perspective of the user who’s now entering into this system, and then now if you understand how Apollo DAO makes a buck, they’re making it because more people are able to participate in their program using leverage. And oh, in that process, so what is Apollo DAO, for example, “on the hook” for? For example, let’s say Anchor’s price drops too much, is it just the users that get liquidated and then Mars bank makes money that way? Or does Apollo DAO somehow benefit if a user gets liquidated?
José Maria Macedo 27:53
Yeah. So with the design right now, no one benefits from users getting liquidated. And obviously… So there’s two situations where the price drops, the normal situation is where the price drops and a user gets liquidated, right. In which case, the liquidation process is a bit different than it is for Anchor or even for the Mars Red Bank because there’s no capital outlay by the liquidator. The function basically liquidates… The leverage yield farm basically liquidates itself where… Let’s say it’s ANC-UST, to give an example, so obviously the user would have… Their collateral would be the ANC-UST LP shares, right, so the contract would unwrap those LP shares, it would take the UST, payback as much of the debt as it can with that UST, then calculate how much Anchor it needs to sell to pay back the remainder of the debt, sell that, pay back the remainder of the debt, and hand back the Anchor to users with a 5% fee that goes to the person who called the liquidation function. But the liquidator doesn’t actually need to put up any capital. And so yeah, that the user is the one that gets liquidated in that scenario. Now, in a scenario where there’s a bad liquidation, or bad debt, where basically the price just gets dunked, and there’s no time for liquidators to act on time. There’ll be some bad debt in the system, right, which just means that a user’s debt is worth more than his collateral. And so in that case, the people who are out of pocket are the Mars Red Bank lenders, right, because now they actually can’t recover the value that they’ve lent out, because there’s no… The collateral isn’t worth enough to liquidate. And so that’s why it’s so important that the Martian Counsel makes really good decisions regarding these credit lines and takes the risk framework and risk assessment of all this seriously, because they’re on the hook for smart contract tax, they’re on the hook for bad liquidations, they’re on the hook for all of that.
Yeah, super interesting, The liquidators that you mentioned, so that’s not the Mars Protocol system that’s doing it in some automated fashion, there are additionally liquidators that want to take on that cheap Anchor. So I guess it’s similar to Anchor in that regard. Is this like an element where Kujira or somebody would offer people the ability to bid on liquidations or what’s that all about?
José Maria Macedo 30:21
Yeah, so with Fields, it’s actually different. So with Anchor and with normal liquidation systems, basically the liquidator pays your debt and gets the collateral plus a bonus, right. That’s kind of how liquidations work and on Anchor it’s this bid system, which is actually really cool. On other protocols, it’s normally a fixed liquidation fee, so you pay someone’s debt and you get their collateral, plus some some liquidation fee. On the Fields of Mars, there’s actually no need for the liquidator to put up any capital, because the contract actually just liquidates itself, basically, there’s no need for anyone to put up capital to pay the debt. And that’s because it’s holding the LP shares itself. So it always has… Provided things work properly, it always has more value in collateral than the amount of debt. So you can always just use the UST portion to pay down the debt and then sell as much of it needs of the other asset, of Anchor in this case, to pay back the remainder of the debt. So all the liquidator is doing is basically just calling a function. And this function becomes available to call once the LTV drops below the threshold defined in the contract. And anyone can be liquidators so anyone can run a bot that just tracks when this LTV drops below the amount and calls this function. And there’s no capital outlay, which should make this even easier in a sense.
Yeah, so some of the… Now again, this is not financial advice, I don’t work for Delphi, I don’t… Don’t do what I do kind of thing, but I’m just brainstorming here. Some coins or primitives that I tend to like are, I think the xPRISM is really interesting, I think LunaX is really interesting, pretty much anything that is a autocompounding situation to me personally is interesting. And that is because you keep some of the value of the staking that’s going on. For me those seemed like the most capital efficient types of collateral that I might want to deploy. So let’s say for example, it’s xPRISM that I want to use to take leverage on, so Jose, this would be something that would be built out by Prism if they want to choose to participate or can third parties go in there and develop these contracts or maybe the Mars community? Who all can participate in that process?
José Maria Macedo 32:54
Yeah, I think all of the above most likely. So from what’s been seen so far in the community it’s been strategies protocols like Apollo, like Nexus, like those kinds of protocols that I think will be interested in developing strategies like this. It’s been the protocols themselves, so someone like Stader that has this LunaX product, they’ve already put out some interesting strategies with that and ways to leverage the Red Bank, I think they wrote a blog about it, and it’s also been just developers who want to build out cool strategies and need and want to use leverage on them. So I think… And also the Mars community itself, I think the Mars community itself will come up with use cases and kind of try them with different communities, so I think it’s going to be probably all of the above.
Cool. One other element in their strategy, is there… Do most of these contracts, do you envision them being something where you can enter an exit them at will? Or is there a time component to contracts, like I’m doing this for six months or some kind of arbitrary date or something like that?
José Maria Macedo 34:02
For the leverage farming you will be able to enter and exit whenever. Yeah, there’ll be no time component.
Got it. And Mars is part of the system that ultimately makes Levana’s 2x longs and shorts work, is that correct or am I incorrect in saying that?
José Maria Macedo 34:23
Yes. Yeah. Levana is built… Levana’s first product, the LVI, the leverage tokens are built on top of Mars. So yeah, they’re leverage tokens that basically deposit LUNA into Mars, and then by UST, deposit more LUNA and just keep looping it to achieve the 2x leverage. Yeah, their second product, the perps is slightly different, but the first one’s built on top of Mars.
Cool, yeah. Hopefully everyone’s kind of following that concept if you enjoy, well, the idea of possibly additional LUNA leverage, then you probably want to follow what Levana is doing and how they’re going to integrate with Mars as well. And, again, I’m not advocating for you to do one thing or the other. [chuckle] So just want to make that clear. But if you are interested in that, Levana is another good follow to see when that owl gets released. Now Jose, so Mars, as far as the ability to use the protocol and some of the early things that are coming out, when do you foresee our first ability to use this?
José Maria Macedo 35:33
Yeah, so the Mars Lockdrop will go live next Monday. So on the 21st, and that’ll go on for a week. And then there’ll be another one week LBA, which will be pretty similar to the Astroport two week process that people might be familiar with. And the protocol will be fully usable straight after the end of the LBA. So, yeah, there should be no time delay, or sort of minimal time delay between the end of the LBA and all the functionality being fully usable.
What can be deposited on the Lockdrop? Is it just UST or is it a system where they can take LUNA yield, or what’s the philosophy there? And how does the token get distributed in that Lockdrop? This is for the MARS token, by the way, guys.
José Maria Macedo 36:23
Yeah. So the only thing that you’ll be able to deposit in the Lockdrop is UST. So nothing else will be… You’ll be able to deposit. And it’ll be UST and you’ll be able to lock your UST in the Red Bank for between 3 and 18 months, with three month intervals. So 3, 6, 9, 12, 15 and 18 months, and there will be a multiplier based on how long you lock it for, a multiplier to your rewards based on how long you lock it for, again, similar to Astroport, but sort of simpler because there’s only one pool. And the recent blog post by Mars sort of walks through the whole… How the multipliers work, and all of that. And I think some community members have already put together calculators as well, that can kind of calculate your yield. And so effectively in the Lockdrop you’re committing to be a depositor in the Red Bank. And for the period of time that you lock, with the minimum being three months. And for that you’ll get a share of the 6% of MARS tokens that are being distributed, as well as ongoing fees as a lender, right, the interest that you’d collect normally as a lender, and any sort of MARS subsidies that get voted in by governance, none are planned so far, but I think that’ll be something that’s assessed by the community after lunch… Something else actually, and the reason for that is just because yeah, UST is the main… Is like the lifeblood of the of the credit lines, right. Because most people when they borrow, or when they’re farming, when they’re leveraging generally they want to be long, right. Very few people are here… There’s a few hedgers I’m sure among us, but most people just want to belong and so you need UST for that. So that’s why UST is the main asset that Mars wants to attract.
Yeah, perfect. Yeah, even in Mirror and such you don’t see sufficient shorting activity in those. So that does become a problem. So now is Mars codependent in any way on ANC-UST yield, or is it completely entirely separate as far as the deploying of the UST itself?
José Maria Macedo 38:34
Yes, it’s entirely separate. It’s entirely separate. I mean, someone could, and I think someone will come up with a strategy that it’s a credit line that just takes UST and deploys it into Anchor, especially if the Mars borrow rate is lower than 20%, right. So I think there’ll be some arbitrage between the Anchor and Mars rates over time. But it’s completely independent. I actually think the synergies is basically Mars can list aUST as collateral, so you can kind of lever your Anchor deposits. And then I think with Anchor having victim of its own success, right, attracting so many deposits that they’re struggling to have the borrower demand to kind of keep up with that, deploying some of that excess UST into Mars could also potentially be a long term partnership there and on the other side, but this is just pure speculation.
Yeah, interesting. So on a slightly different note, of the Mars Council, which is going to be approving some of these contracts, besides the mathematical risks, like price action risk of an asset affecting, say, for example, liquidations, do those contracts need to be additionally audited also or are they going to be so simple that an additional auditing would not be necessary?
José Maria Macedo 40:02
Yeah, I think it’ll be a case by case basis. I think for leverage yield farming, Mars has come up with a risk framework that… Yeah, I think there’ll be a contract to contract risk framework that will help guide this. And there’s sort of three categories of risk for these strategies. It’s generally technical risks, so smart contract risk and exploits on the smart contract level, then there’s counterparty risk, which is with the asset itself, for instance, if it’s something like tether, or Binance USD, where there’s some counterparty risk, or even some token where there’s a multisig involved that has minting functionality, or something like that, that’s something that needs to be assessed. And then the final one, and probably the most important one is market risk, which is just how liquid is the asset, how volatile is it, because obviously any asset that Mars is lending to as collateral needs to be able to be liquidated. So Mars needs to be certain that in whatever market conditions, that asset will always be able to be liquidated. So those are kind of the three big, broad categories. And then I think for each… Initially, for the leveraged yield farming, which I think will be the first six months to a year, the main focus, there’s some pretty clear smart contract guidelines and I don’t think there needs to be many audits. But I think as this stuff gets more and more complex, and people dream up more and more interesting applications for the credit lines, there might need to be ad hoc auditing of specific contracts, or talking through how best to do things and all of that
Got it. S these contracts could theoretically be sufficiently complex enough for an exploit in theory. So they’re gonna have to be approved with a fair degree of caution, I guess. Because yeah, it wasn’t clear to me if it was gonna be one of those deals where there’s already a preset framework of types of contracts. And then it’s a copy paste type of deal where a protocol just decides what asset it wants and just plugs in the numbers. So for each of these, you’re gonna have a whole sort of separate contract. What if a protocol or whoever wants to create a process doesn’t have the technical knowledge to create a contract on there, but has like an idea? Would that be like a protocol would then sponsor that or is there infrastructure at Mars to build something based on community ideas? Or what are your thoughts on that kind of direction?
José Maria Macedo 42:35
Yeah, I think I see that evolving, similar to sort of Yearn on Ethereum, if you’re familiar with that, where you have community members that can come up with strategies, you have these strategists, ideally they should be technical, but I think there’s been situations where they haven’t been and they’ve teamed up with someone technical, and then they’d suggest strategies to someone like Apollo, or Spec who would run those strategies. But I think that’s more down to the yield aggregators and the strategist themselves to incentivize community participation in outlining strategies, rather than Mars itself. Although, obviously, for interesting strategies, I think there’ll be Mars community members that want to help building them.
Understood. Yeah. Hopefully, the line of questioning wasn’t too esoteric for everybody. But I think really understanding the fundamentals of how the system works at some level to let people start dreaming up ways they might use this either as a protocol or as an individual, I think is exciting because I wasn’t really sure I fully got it before talking to you and I think I have a much better understanding. Any general kind of thoughts and comments, and maybe we can take some questions from folks. Do you think we missed anything huge?
José Maria Macedo 43:57
No, I think, yeah, you did a really good job digging in. I hope it’s clear to people. There’s been… I think that the Terra Bites people, I think Larian and I went on Terra Bites yesterday, and I think the Terra Bites guys actually did a really good job explaining this as well. Sometimes it’s easier from…
danku has a video too, I think. He’s here as well so I think the mixture of Terra Bites, and his, and then this Spaces probably covers a lot.
José Maria Macedo 44:24
Yeah, for sure. For sure.
Let me see if there’s some questions from the audience. I had one…
José Maria Macedo 44:29
One metaphor that I use it that could be helpful for what Mars enables is if you think about most money markets and obviously some are evolving to do really cool shit actually, like Jay who’s here from Rari, they’re doing some really cool stuff with Fei and there’s a bunch of people doing really cool stuff. But for most money markets, you can only go in and deposit some collateral and then borrow less than what you put in, right, but in order to borrow you actually need to be a depositor. So it’s kind of like in order to be a guest on Airbnb, to stay at an Airbnb, you also needed to be a host, right, you needed to have your house on there. And if you think through how that would affect adoption of Airbnb, I think it’s a similar thing to money markets, right. Where if you open up borrowing to anyone, rather than just people who happen to have deposits locked up on the protocol, I think you can really expand the amount of use case.
Jose I’ve lost your voice there a little bit.
Yeah, I think so.
He was there and then he wasn’t for a second. So I’m not sure if he’s gonna reconnect. Midas do you have any comments or thoughts while we’re waiting to see if his connection comes back?
No, I just wanted to remind you guys, if you have any questions about Mars, you can also go to discord.gg/marsprotocol. And you can ask any questions that you have, and there’s a community that is already helping out with any doubts that you could get. So yeah, it’s pretty much… Let me just ping Jose here because… Let me see if he’s around.
Yeah, I think for my understanding of the protocol, I feel like it’s really interesting in the idea that I might be able to get access to leverage on things that I might have been interested in investing in anyway. And I think it would fit strongly with my general strategy with borrowing. I tend to borrow when I think the price of something has really been depressed quite a bit, because I tend not to take a lot of borrower risk personally. But it seems like this is going to offer a lot of interesting ways to get maybe a different style of leverage compared to what you’re getting, say for example, on Anchor, or like heading over to KuCoin or something off-chain. So definitely some interesting permutations come from all of this. And there may be some other permutations and strategies that come from a mixture of say, Anchor and Mars and some of the other protocols that are emerging. So pretty exciting stuff. Yeah, Jose, are you back on?
José Maria Macedo 47:24
Yeah, sorry. I don’t know. This always happens on most Space. I randomly get booted off. I don’t know. It’s weird.
It’s all right. So yeah, I think we… And I’m not sure exactly what word you dropped off at, by the way, if Midas remembers, but I was gonna say maybe we could take some random audience questions. There are a few people who are here that kind of came on early. I don’t know if they have questions super specific to Mars, but maybe let Juicy on for just a second, see if he has a question.
José Maria Macedo 47:54
Just a quick one before before you jump in, Juicy. Love your bull, by the way, but what did you get the Airbnb thing? Did I get to that?
What Jose was, I think, saying was that if the only people that could rent an Airbnb were other people that actually had houses listed on Airbnb, your possible list of clients is going to be relatively short. Whereas if you have all the Airbnb users, but then you have all the other people that can be on Airbnb, like general customers, and they don’t have a house listed, then you have a much bigger market. Is that right?
José Maria Macedo 48:29
Yeah, that’s right. And the other side of that is that you have… In DeFi right now, and in general, you have all these different pools of capital, right, there’s stablecoins on Aave, and on Compound, and on exchanges and on centralized exchanges. And each of them are basically putting them to use in their own ways. And what Mars tries to do is what if there was one pool of stablecoins that everyone could tap into, according to certain rules, right, according to this governance framework, but everyone can tap into it. And so you have the efficiency of one pool that can service all the use cases that there can be for leverage, right. And UST I think is going to be a very high demand asset in terms of the different things that can be done with it. And it doesn’t make sense for every application that wants to use UST, that wants to add leverage to UST to have to build their own money market. It makes sense for there to be one pool that kind of everyone can borrow from according to predefined rules.
Oh, there was an important question I forgot to ask earlier, and that is for each of these contracts… So is there a limitless amount of possible borrowing? Or is that going to be essentially limited by the contents of the liquidity available within Mars? And does there come a point where a contract or lending system becomes oversubscribed and then that’s closed for a while?
José Maria Macedo 49:52
Yeah. So for each strategy, there’s going to be a limit and that’s just going to be based on a risk assessment. So for instance, if there’s a liquidity pool that has $20 million in liquidity in it, you don’t really want to have people levering up $100 million on it, right. Because it’s just gonna be like liquidation cascades and a lot of volatility. So you want to kind of limit it to the size of the liquidity pool. And then in terms of the borrowing demand itself, that will just be regulated by the interest rate, right. So as there’s more borrower demand for credit lines, the interest rate will go up. And some use cases will get priced out, right, if your farm isn’t earning enough to pay for the borrow, then you get priced out and you’ll naturally close your borrow position, which lowers the interest rate, and brings it back into equilibrium. So the interest rate will regulate the supply and demand for credit, but there will be limits per strategy that will probably be raised over time. Yeah.
So what is the mechanism then for the ever increasing possible contracts on there, then? What is the incentive to the people, let’s say, depositing lots and lots of UST on the protocol? So initially, there’s a Lockdrop. But let’s say a year from now, what would that look like?
José Maria Macedo 51:16
Yeah, so the incentives for them will come from the borrow demand, right, so from all the farmers on Terra who want to farm on leverage, who want to double their yields, who want to earn… Or later on with other applications, who want to margin trade, or who want to do levered Nexus strategies, all of those will be borrowing UST from that pool. And so they’ll be paying interest to the lenders who are putting UST in that pool.
Got it. So that’s how the lender is getting a benefit with the UST. Perfect. Okay.
José Maria Macedo 51:48
Yeah. So the lender is basically putting his UST in this pool, and then it’s being loaned out to people on the Red Bank, right, who use who use collateral and borrow it out, and also to these contracts, which are approved by the Martian Council. And so it should be the highest efficiency UST pool, because it’s going to be put to a lot of different uses.
So in other words, in theory, you should be getting a better yield than Anchor UST but you’re taking on the additional risk associated with that.
José Maria Macedo 52:23
Yeah, yeah, I think… Yeah, I mean, hard to predict. But I think most likely the yield will be higher during bull markets and probably lower during bear markets, but it’s always gonna be pretty close. Because otherwise there’s an incentive to kind of arbitrage it.
Right, right. Exactly. Because what he’s saying is that because Anchor UST yield is a de facto baseline, then why would someone necessarily automatically take a higher risk on Mars if they have that as a theoretical guarantee? And that’s where the arb comes in.
José Maria Macedo 52:56
Yeah, the arb is that you can also just borrow UST on Mars and deposit it on Anchor, right, if the rate is lower.
Right, right. Of course. Yeah. Cool. I’m gonna get Juicy on real quick since he’s been waiting. Juicy, go ahead. You had a question?
Yeah, sure. First of all, thank you very much for the overview. It’s relatively straightforward. I guess my question would be on liquidation tax and whether or not you’ve spoken to Kujira, or another third party step-in to potentially quell that tax. First of all, what is it, and then whether or not you’ve had any discussions with a third party step-in provider?
José Maria Macedo 53:34
Yeah, it’s a great question. I’ve been looking more into liquidations recently, the way Mars liquidations… So the Red Bank liquidation and the Fields liquidations works differently, as I kind of explained, but I think that the Anchor system, so the one that Kujira enables is actually better, in my opinion, it’s more efficient. So definitely, there’ll be something the community can decide once it’s launched, whether it makes sense to upgrade to a bidding system, right. Because right now the Mars system is is there’s like… Similar to Aave, or Compound, or other protocols on Ethereum, where there’s just a base liquidation fee, right, so I think it’s gonna be 10% to start with for LUNA, and then for Fields it’s slightly different. But the Anchor system is more efficient, because it’s more market based, right, you end up having more like an order book. So I do think that’s something that the community should consider post launch and I think it’ll be part of defining what a direction might be for V2. But I really like it, I think… Yeah, I kind of wish I’d understood it fully earlier, to be honest.
Thanks. That’s all I got.
Let’s see, if someone wants to kind of wave their hand. Ryan and Francisco were sort of here. I don’t know if they have questions here, let me pull one of them up. You can tell how much more mature the… Yes, go ahead. Go ahead, Francisco.
Thanks. Thanks for the overview and for your time. So I’m a bit confused. At first, I understood that there will be no one profiting from the liquidations, right. But now there’s a liquidation fee. And who is that going to? And also is the smart contract, does it have admin keys? So because this adds another layer of risk and yeah, probably it does, because I don’t know if you can do this in a trustless manner. So those are the questions. And I had another one, but just if if on the Discord group if I can have help doing the basic things. So I’m new in this ecosystem, like setting up the wallet, participating in the Lockdrop, step by step help. I know there’s no customer support in the blockchain, but I’m just curious if I can reach out to those guys. Thanks. Thank you.
José Maria Macedo 56:15
Yeah, no worries. Good questions. I probably misphrased that. I meant there’s no profit in the sense that like in a centralized exchange, where you just get rekt and it’s a centralized exchange pocketing the profit. In the case of Mars on the Red Bank, there’s that liquidation fee which goes to the liquidator. And anyone can be a liquidator, there’s there’s no admin key or any centralization there. So once the LTV drops below the margin threshold defined in the smart contract, anyone can come in and call the liquidation function and then they can pay back the user’s debt and receive their collateral plus that 10% bonus. So in that case, there is the liquidator that profits. In the case of Fields, the contract liquidates itself, but you still want to encourage people to run bots to call the liquidation function, right. And so in that case, the person who calls the function gets 5% of the remainder. So as I said, the function unwraps the LP share, uses the UST to pay back the debt, and then sells as much of the asset as it needs to to pay back the remainder of the debt. And then the remaining amount of the asset, 5% of that is used to reward the liquidator for kind of running the bot and clicking that function. So liquidations are pretty trustless. In terms of admin key, the protocol is going to be fully decentralized on launch. But there is going to be a multisig that is run by members of Mars Protocol and Delphi Labs. And we have a whole disclosure about that and there’s agreements that have been signed and stuff and try to do everything very transparently. And the main reason for that is just because this is… All the stuff is experimental software and you want to just be able to react quickly to anything that might go wrong. But yeah, there’ll be like a full disclosure and risk disclosure before launch, including the multisig and everything else, all the kind of trusted components of this.
Yeah, I think he was asking specifically, is there a scenario where you have money in contracts or what have you and then suddenly Mars Protocol people in the background can rug pull the protocol. Maybe that’s what he was getting at. I don’t forsee that to be a problem, but I guess that’s what his question is, I think. [chuckle]
José Maria Macedo 58:50
Yeah, no, that… No, that’s not an issue.
Okay. Yeah. So the contracts would obviously not contain that capability. Once the contract is approved, it functions as stated at that point. And that’s that. I think that’s what he was asking. Let me pull on…
Thank you. Thanks. Thanks, guys.
Yeah, no problem and pull up Mide here and see if he has a question. No great questions everybody. I was just gonna say the maturity of the Terra ecosystem and understanding some of these concepts has really increased with all these Spaces and everyone’s experience with Anchor, and the… I think more and more people are understanding the benefits of these various protocols and pros and cons. So the questions are getting smarter and smarter as time goes on. [chuckle] So Mide, are you there?
I’m not sure how you pronounce your name.
Yeah, Mide, spot on. Hi, thanks for the Space, thanks Jose for being here to explain to us. I have a question. In case of an exploit, of a smart contract exploit, and maybe a hack or something, how does this favor the the users? Is there going to be an insurance for you? Are they going to be able to… Is the protocol going to be able to repay? Or what happens if there’s a hack?
José Maria Macedo 1:00:23
Yeah, good question. It depends where the hack happens. But in general, with Mars and with any protocol that has credit, you have governors who make decisions, which can affect users, right, like if governance chooses to onboard an asset with a faulty oracle, and that gets exploited, users, so lenders are the ones that get screwed, right. And so the way Mars has been designed is that governors who are the ones making the decisions are also the ones who bear the downside of those decisions so that they have skin in the game. And so Mars has a two tier architecture, where xMARS stakers are sort of the second tranche, and then there’s an insurance fund which is the first tranche, which initially will be zero, but over time Mars charges 20% of all borrowing interest goes to Mars with 10% going to build up an insurance fund, and 10% going to xMARS stakers. And so over time, that insurance fund will get built up and it’s going to be held in aUST, so Anchor UST, and then there’s gonna be xMARS stakers on top of that, who can be slashed as well. Now, to be clear, there’s nothing built in contracts to enforce this, it will be hard to do because of because of the range of different hacks that can exist. But it’ll be similar to Maker if you’re familiar with that, or Aave with staked AAVE, where the social consensus is that if there is a hack, the insurance fund gets depleted first, and then if there’s any remaining funds, then any remaining liability to be paid, xMARS stakers would be on the hook qnd they’ll be slashed up to, I think it’s 30% of their stake to make users whole. So over time, there will be an insurance fund. Initially, it’ll be zero, but it’ll be built up over time. And while it’s being built up, there’ll be xMARS acting as kind of a buffer between hacks and users. But yeah.
But in general with… A good piece of advice, I think, for smart contract platform users is that there’s a general tendency to find exploits, hacks, bugs over a period of time. So how much capital you deploy on various platforms should really be reflective of your buildup of confidence over time, I think, as far as the likelihood of something else happening. Because there is always incentive to attack systems. And even the white hat hackers are going to take some time to figure out where the problems are to even report those even if there’s a bug bounty, or whatever. So there’s always that element of it, and the longer you’ve been around this, you realize… I mean, even Jump Capital wasn’t able to keep an event from happening on Wormhole in the last few weeks. So even well funded, high quality organizations, problems can occur. So everyone should always allocate capital accordingly to their risk tolerance with smart contract platforms, okay. So don’t go nuts and put all your life savings into something and then something happens, right. [chuckle] Jose any comment about that?
José Maria Macedo 1:03:41
No, I would echo that. This is experimental tech built on top of more experimental tech. We often forget that especially during bull markets, and I agree with your blueprint of kind of waiting for a protocol to be live for a while, and also the more TVL it has for longer, the safer it is. But then there’s also situations like, I think, Aave the other day found a critical bug that had been in the protocol for over a year. And they have 20 billion in TVL so it’s rough. Smart contracts are really hard. There’s all sorts of interactions and attacks and once you put them out there that they’re out there and anyone can exploit them so yeah, this stuff is risky, so kind of act accordingly. And yeah, only put in what you can afford to lose and then, yeah, like own your own losses. There was a lot of people with the Wormhole thing kind of either crying to Jump or just expecting them to make them whole and they did, but they had no obligation to do that. It was just very fortunate that there’s Jump behind find that, but yeah, I think it’s worth keeping that in mind.
Yeah, in that particular context, yeah, they were able to make people whole but that’s not always the case depending how much money involved is in a protocol, because the backers may not have that much necessarily. So yeah, always be aware of these kinds of concerns. But what I tend to do, just as a general point is I start playing in protocols so I can start learning them and understanding them better. And generally protocols that come from fairly trusted sources in terms of backing, like Delphi, and others, they typically are not going to scam your wallet or whatever. So you’re not usually talking about those types of problems, the more obvious stuff like scammers would do, we’re talking about more complex exploits and such that tend to get discovered over time. So yeah, definitely… Yeah, people always say that, “Play with what you can lose,” but really just learn the protocols, understand what they do, figure out if they’re useful for you, and do that with small amounts of money so you understand the systems really well. And then you can decide as time goes on whether the risk is worth it to you to take on higher risk. And for a small retail investor I think that’d be a wise avenue here. Let me get Comozzo on maybe for one or maybe the last questions here and we can try to break. Comozzo, are you there? Or Ryan, who’s also been here a bit.
Ryan Melvey 1:06:24
Hey, thanks so much for the call, guys, I really appreciate it. I have a question about some of the wrapped assets that have been showing up onchain. And also, I mean, unfortunately, kind of ties in with the Wormhole discussion. But could we eventually see wrapped SOL or even wrapped USDT, wrapped USDC as potential markets on Mars?
José Maria Macedo 1:06:54
Yeah, absolutely. So that’ll be down to the community. But as we kind of saw with the Wormhole hack, right, wrapped assets do add more risk, right. You add an extra layer of smart contract risk and an extra layer of economic and security risk, right, because those assets are maintained by the Wormhole validators. So it has to be part of the risk assessment. So Aave, for instance, it allows USDT to be borrowed, but not used as collateral, right. Because they don’t want to have that liability on the protocol in case Tether rugs, or whatever. And I think stuff like that is really wise to do and that’s why it’s really important to have strong risk assessment of every asset on an individual basis, right, because each asset has different risks. And it also depends what bridge it’s wrapped… What bridge is used to be wrapped, the particular sort of security trade offs of that bridge, and all of that, and also how much liquidity there is for that asset onchain. So yeah, I think those are really good assets to eventually list but just needs to be kind of accounted for with the risk parameters.
Yeah, I’m particularly a bit more interested ultimately in the IBC based assets on Terra, only because they have interesting yield properties, but also you have the benefit of bringing them in by IBC, versus having a bunch of bridges and whatnot, which I think is going to be a nice growth driver for both Terra and the Cosmos in general.
José Maria Macedo 1:08:24
Yeah, 100%. Super… Yeah, super interested in those. I think first step for those is to get enough liquidity on kind of Astroport so that they can be liquidated safely, and then kind of listings on Mars. But I do think, yeah, I’m really excited about IBC and some of the stuff that can be done cross-chain within the Cosmos ecosystem.
Cool. Comozzo, did you have a question?
Yeah, I do. First, I think you’re an absolutely great host. I think both of you explained it really, really well. But the question I’ve got is to do with the liquidations. So are the liquidations effectively instigated by bots? And effectively is there a requirement there for developing a bot to instigate the liquidations for the Red Bank?
José Maria Macedo 1:09:19
Yeah, well, kind of. It doesn’t have to be a bot, it’s just that most likely a bot will get there first, right. It’s basically any position… So every borrow position is an individual position on chain, right, with its individual LTV, and when there’s a parameter in the contract that defines the threshold of LTV, at which point it becomes able to be liquidated. And at that point, there’s bots that are scouring the chain that can call a function and then liquidate that. So it ends up being that it’s mostly bots that do it but you could, if you were like up 24 hours a day and super fast, do it as well.
Okay, I see. So I mean, from a developer’s point of view, because we’re developers, that’s actually quite a good thing to develop, potentially?
José Maria Macedo 1:10:11
Yeah. 100%. We’ve built one that we’re gonna open source, but I’m sure people are gonna come up with stuff that’s a lot better and faster over time. And especially the one for Fields will be super interesting, because you don’t even need any capital for that one. You literally just need a really fast bot that can call the function first. And you’re just collecting money. Maybe I should… Yeah, probably shouldn’t say that.
The other question I have is when does the lock start? When does the Lockdrop start?
José Maria Macedo 1:10:43
Yeah, the Lockdrop starts next Monday, goes on for seven days. And then the lock starts counting from the end of the Lockdrop. So yeah, it goes on next Monday… It starts next Monday, goes on for seven days. So for those seven days, you’re going to be able to come in and deposit UST and then last two days, you can withdraw if you want. Similar to Astroport if you followed that. If not maybe Cephii can send you some of the fuller blog posts on it. So you can… ‘Cause it goes into more and more detail on it. But yeah, it’s just a week where you can deposit UST, and choose how long you want to lock it for. You can also have multiple positions, so you can have some UST that’s locked for 18 months, some that’s locked for 3 months, some that’s locked for 9 months, and all that.
Alright, so I mean, basically what we’re saying is… ‘Cause this is the first time I’ve come across yourselves today. We can get involved… It’s not too late to get involved.
José Maria Macedo 1:11:38
No, not too late. Next week, next Monday, 21st.
Excellent. That’s great. Thanks a lot.
Yeah, there’s two ways to look at it. You could build your own bot to do this, ultimately, you could create a protocol that allows other people to participate in it. So those are the two avenues, I would think.
Yeah, it’s a really good idea.
Cool. Yeah. Thanks for the question. Great question. Let’s get yacht_tea and then we’ll kind of wrap up. Yacht, you got a point?
Yeah, quick question. I was just looking over one of the Medium, I think the one of the white papers about it. But going back to that Airbnb example, it sounds like you still need to be overcollateralized in order to take a loan, but the Airbnb example, I kind of started to think that there would be undercollateral under collateralized loans. Can you talk a little bit more about that? Thanks.
José Maria Macedo 1:12:31
Yeah. Good question. So you always have to be… Yeah, what’s the best way to explain this? You always have to be overcollateralized. But in the sense… So on a normal money market, if you put in $100 of collateral, I have to necessarily lend you less than $100, right, because you can go do whatever you want with it, you can take it wherever you want. And because of that, I have to lend you less because if I lend you more, you’re just gonna run away with it, and you have no incentive to ever pay me back, right. Whereas with something like an FTX, or like a Binance, or a margin trading platform, they can actually give you 10x leverage, right. And that’s because you can’t just take 10x leverage, and then transfer the money off the exchange, it has to stay there and then they can track it and they can liquidate you if it ever gets dangerous. And so that’s the big difference is Mars enables that kind of leverage. So you can have 10x leverage, but the contract holds both the amount that you borrowed and your collateral. And they can liquidate it in case it gets to a dangerous level, right. So because the contract’s holding it, and you can only do a specific thing with it, you can offer a lot more leverage. So you can do similar leverage to what you do on centralized exchanges. Does that make sense?
Yeah, so what you’re saying is, as long as the actions that you take when you lever up are all within protocols, as far as the different tools on the site, then you’re okay?
José Maria Macedo 1:14:00
Yeah, exactly. And as long as the actions that you take, for instance, if you’re buying tokens, or if you’re LP-ing, as long as that stuff is held by a smart contract with certain liquidation conditions that tracks the value of what you’re doing, so if you’re aping Anchor with it, it can track the value of Anchor over time and liquidate you if needed. As long as it has that possibility, then you can do… So the amount of leverage you can do is only limited by your ability to liquidate, so the speed of the blockchain, and the riskiness of the asset. But there’s nothing stopping you from building a decentralized FTX-like experience on top of a protocol like Mars, right. Because you… Yeah, as long as you can write the smart contracts and then the collateral’s sort of trustworthy enough, you can have those kinds of experiences on this. So that’s the sense in which it’s under collateralized. So it’s always over collateralized, but you can do a lot more leverage is the answer.
Okay, so if you just were putting in the UST box, essentially, then you could lever up within that? So if you put in, let’s say, $10,000, what type of leverage would be able to take?
José Maria Macedo 1:15:13
You’re talking about in the Red Bank?
José Maria Macedo 1:15:16
Yeah. So that’s kind of two separate things. And there’s also separating what’s launching and what could be possible in the future. So what’s launching is, you’re going to be able to do leverage yield farming where you can get 2x leverage, right, so you can have $100 of ANC, and you can borrow $100 of UST. Or pretty soon after, you can get $100 UST and you can borrow $100 of ANC, and you can farm with with the $200. So that’s one use case, right. And then eventually, you could have… So this won’t be there at the launch and requires someone building it. But eventually, you could have a situation where you come in with 100 UST and the protocol gives you 500 UST, and with that 500 UST you can interact with certain whitelisted applications that the protocol has approved, right. So you can buy certain tokens, you can LP in certain farms, you can add to certain vaults. And the protocol just looks at what you’re doing, it looks at the value of your positions. And if the debt that it’s given you, so the 400 bucks that it’s given you, or whatever I said, is higher than your collateral, it just liquidates you, right. But that’s like a possible use case in future where you could just have 5x leverage and then be able to interact with a bunch of different whitelisted protocols.
Okay, yeah, I appreciate you answering that. The more that we’ve just been speaking and the more I’ve been hearing, the more it sounds like the playing the liquidations on this is the move.
José Maria Macedo 1:16:41
Yeah, yeah. I mean, probably Yeah.
But it sounds awesome. Appreciate it. Thanks.
José Maria Macedo 1:16:45
So Jose, maybe one last question from me. So if I’m interacting with the protocol in the early stages, am I bringing… Not for the Lockdrop, but after things are sort of rolling, am I bringing in… Let’s say for example, a LUNA situation. Am I bringing in LUNA to the table? Or am I bringing UST and all of the leverage on LUNA is happening in the background? How does that user experience work? Or is that going to vary per contract?
José Maria Macedo 1:17:20
Yeah, so if you want to be a lender, and just passively earn yield on your assets, you deposit them in the Red Bank, right, and then they get loaned out to borrowers in the Red Bank, and borrowers in Fields. If you want to be a borrower, there’s two kind of ways to interact. You can be a borrower in the Red Bank, where you basically put in LUNA or UST and borrow, or you can be a borrower in the Fields of Mars, where you’re doing the leveraged yield farming. So in that case, you could come in with LUNA, for example, if you want to farm LUNA-UST, you could borrow UST and farm LUNA-UST earning double the yield, right. So those are kind of… And eventually, as more and more credit lines get unlocked, you’ll be able to do more and more of that kind of borrowing where you’re not interacting with the Red Bank.
Okay, so the interface per contract is gonna be a little bit different depending on what’s being brought…
José Maria Macedo 1:18:08
Yeah, there’s going to be the Red Bank interface. And then it’s going to be the Fields of Mars interface, which is where the leveraged yield farming is going to happen. And I think Larry’s actually working on a video of the Fields of Mars interface to make this more kind of tangible for everyone.
Before that happens, is there… What protocol on Ethereum or something like that that might be the most similar user experience that people might research if they’re interested in the idea of it.
José Maria Macedo 1:18:40
Yeah, Alpha. Alpha is the… Alpha Finance on Ethereum is the pioneer of leveraged yield farming. And then Alpaca on Binance Smart Chain also does leveraged yield farming, so that can get you used to what the UX feels like.
Perfect. So Alpha Finance, and Alpaca, got it. Let me add… I think Marty had one last question, then we’ll quit here. I tried to get Marty in when he shows up just because he usually has good questions. Marty, are you there?
marty schoffstall 1:19:12
Yeah. Sorry. When you always enable me, it blanks out for like 10 seconds, I apologize. So now, I think I get it. The user interfaces for all the partnerships you have are gonna be consolidated into kind of one area on Mars. Is that correct?
José Maria Macedo 1:19:36
Yeah. Could you repeat? You cut off a little bit for me.
marty schoffstall 1:19:39
Sorry about that. So from your last statement, when I got, which has been on my mind for this whole conversation, is that all the partnerships that you have with whoever in the Terra system that want to do leverage are all going to be in one place on your website. That’s kind of question number one.
José Maria Macedo 1:20:03
Yes. Yeah, that’s… Yeah, that’s exactly right. So there’s going to be the…
And that’s the Fields of Mars component, Jose?.
José Maria Macedo 1:20:11
That’s it. Yeah. That’s it. So the Fields of… Yeah, exactly. So all the strategies, the leverage strategies will be on the Fields of Mars and all the more basic lending and borrowing will be in the Red Bank.
marty schoffstall 1:20:21
Got it. Okay. So question number two. So I familiar with the ETH side of the house. On the Solana side, there’s Frankie, and there’s a few other kind of lending sites, which I’ve used. So can I dial how much leverage I want to use if I’m a boring boomer that I am? Maybe I only want 50% leverage. Or maybe one day I want 100%. Can I dial how much leverage I want to use on a per transaction basis? That’s kind of question two. And I think I have two more.
José Maria Macedo 1:21:03
Yeah, yeah, you will be able to do that. The only caveat with that is it requires swapping, right. Because let’s say you… Especially to LP, right, if you want to do 50% leverage, and you’re using $100 of ANC as collateral, then you’re borrowing $50, right. So you have to sell some of your Anchor to get enough UST to make it one for one. So I actually don’t recall if that’s on launch, or if it’s soon after, but that’s definitely gonna be possible. So that’s that first question. And then one thing I want to touch on to your… Sorry, that’s your second question. One thing I wanted to touch on about your first question is, I think eventually there’s also going to be applications that integrate Mars where you’re using… I don’t want to call specific applications, but you’re using other applications and you’re actually getting leverage from Mars, and you don’t even know it, right. And that’s kind of the endgame of the Fields product, it’s kind of a B to P in certain sense of like, it’s a protocol to protocol product, where different protocols can tap into these credit lines. And so, initially, I think a lot of the strategies are going to be listed on the Fields of Mars page, but eventually, the way I see it going is that all these protocols will just be tapping into this themselves.
marty schoffstall 1:22:24
Cool, that was great. You just answered question number four. So thanks for reading my mind. And by the way, the reconsolidated pool concept is obviously pretty fantastic in all this. So question number three, and I’ll try not to come up with any new questions. So question number three is, on some of the user interfaces that are out there, I can add equity to my position before it gets basically unrolled. Is that gonna be a possibility in some future version of the Fields of Mars?
José Maria Macedo 1:23:08
Yeah, absolutely. No, that’s gonna be a possibility from the beginning. So, yeah, WE3 has worked on a really sexy interface for this, the Manage Position interface. Yeah, you’ll be able to both add equity and pay down your debt. And also very easily, visually see where you are with it all. I also have some ideas for a liquidation protection product that would sort of auto automatically pay down your debt once it gets to a certain level. Working with Nexus on that one, I don’t know where we’re at with it. But yeah, there’s gonna be a lot of options to… Managing your position is going to be possible from the very beginning.
marty schoffstall 1:23:46
Okay, so now I have a lobbying. So this is not a question, officially, this is a lobby. I will again, lobby for my lucite, my NFT lucite that said I was an initial investor in Mars Protocol, like I lobbied for in ASTRO. And again, thank you very much. It was awesome.
José Maria Macedo 1:24:07
No worries, man. Thank you.
Yes, the question today had been fantastic. And obviously, everyone’s gonna get a better chance to get a feel for how everything functions, and the user interface, and the actual interactions, but it definitely sparks our imagination as far as how to use it. And hopefully the level of detail here wasn’t too exotic. And I know there’s a lot of different types of people listening. I tend to go a little bit more into these technicalities, just because I want to know how to use this system. And I want to know how much I think I want to invest in, say, in Astroport, or Mars, or whatever. And so I’m just looking at it from every angle as a user and an investor and I tend to go a little bit more in depth, so hopefully, I didn’t lose everybody. danku’s here, and then Terra Bites, and there’s gonna be a lot of videos created by folks who hopefully filter a lot of this information for everybody. And ultimately, it’s gonna be a lot easier to build user interface tutorials and whatnot once that comes along. But like Jose said, you can check out some other possible interfaces like Alpha Finance, and Alpaca on Binance, and kind of get a feel for what type of a lending protocol this is, and whether it’s useful for you. Jose, it’s been great having you, we did this for I think Astroport, I think, last time and it’s been great for Mars. So hopefully you keep doing this for the community.
José Maria Macedo 1:25:36
Yeah, listen, I really appreciate all the great questions from you and the community. Yeah, I tried to explain it as simply as possible. I think it is complex and also being in the weeds, it’s hard too, but if anyone has any questions that come up after this, feel free to DM me. I generally answer unless you’re trying to get me to promote your NFT project or whatever.
By the way, I did record this, gang. So it’ll show up on my little feed there. So if you missed it, because I know I was late, I apologize, you should be able to capture all of this on the recording, because I think TerraSpaces didn’t make it to this one. So I’ll forward the recording to them, they can add it to their list. Alright, well thanks, everybody, and Midas, thanks for helping set this up.
Thank you guys,
José Maria Macedo 1:26:28
Alright, bye guys. Catch everyone later, bye.
José Maria Macedo 1:26:31
Speak soon. Bye.
Thanks for checking out another episode of The Ether. That was the Mars Protocol Space hosted by Cephi with Jose and Midas and a bunch of other people. Recorded on Tuesday, February 15th 2022. This episode of The Ether was brought to you by Luart. Luart is the first gamified NFT platform built on the Terra network. Luart provides a seamless minting and trading experience all while earning you rewards just for being a user. Be sure to follow them on Twitter and join the community in the Discord server for the most up to date news and announcements regarding all the hot new NFT launches, platform upgrades, and new projects hitting the secondary marketplace. Are you ready to #PutYourHelmetOn and join the movement? Find out more luart.io. This episode of The Ether was also brought to you by WeFund. WeFund is a community crowdfunding cross-chain incubator on Terra and it’s the first launchpad that implements a milestone funding release system to protect investors. All money raised for projects is deposited in Anchor Protocol and it’s refundable, and all decisions are based on community voting power. WeFund is community focused and designed to be a user friendly experience for both project creators and investors. Be sure to follow them on Twitter and join the Telegram for more information. Links are in the show notes and check them out online at wefund.app. TerraSpaces appreciates the support from all our sponsors. For terraspaces.org, I’m Finn. Thanks for listening.