Mars Protocol Hub Cosmos

Mars Protocol: Cosmos Ecosystem's Game-Changer

What is Mars Protocol, and what does it do? Don't want to miss out? Read on for more…

What is Mars Protocol?

Hailing from Terra, Mars Protocol is a Credit Protocol — or more commonly known as a money market. A money market, like banks, allows participants to borrow and lend assets while the protocol manages illiquidity and insolvency risks.

Apart from the usual practices of most DeFi money markets, which is to facilitate collateralized borrowing, in 2022, they introduced a new type of credit system — called the Field of Mars, which was a form Contract-To-Contract (C2C) Lending that enabled people in to borrow money without putting down collateral, and ultimately using it to increase their yields.

This was useful in specific scenarios such as (but not limited to) leveraged yield farming or arbitrage and brings in borrowing demand for collaterals.

A picture which show Mars Protocol from the Cosmos Ecosystem and their leveraged yield farming solution for decentralized exchanges
Good old days…

Mars performance on Terra

During Terra’s peak, Mars Protocol has $350m in TVL, accounting for a mere 1.8% of Terra’s total TVL ($18.74B) on the 7th of April, 2022 — shortly before $UST started depegging.

A picture which show the TVL of Mars Protocol during their stay on the Terra LUNA Ecosystem, and their move to the Cosmos Ecosystem

Since the crash of Terra, they have since been busy planning their rebirth — ultimately choosing to rebuild on Cosmos because of the technology stack.

After the Tera Crash

Mars Protocol has made considerable progress in its evolution and expansion. On January 31, 2023, it launched its mainnet on Cosmos, thereby becoming available on Osmosis, Cosmos' largest DEX . After launching Farm Vaults on the Osmosis Outpost were introduced, a feature that allows liquidity providers (LPs) to increase their earnings from their Osmosis LP positions and understand how minor decisions can impact their risk profile.

Strategically, Mars Protocol extended the lock-up period for its governance token by six months as it transitions from Terra to its own Mars Hub appchain. This decision aligns with its goal to fortify its governance structure and ensure platform stability. In its bid to bolster risk management, Mars Protocol unveiled its Risk Framework 2.0. This comprehensive framework is designed to provide users with a robust system for managing their risks on the platform.

Simultaneously with its mainnet deployment, Mars Protocol launched its own cosmic application chain. In a generous gesture, it distributed Terra Classic MARS tokens to users who held them during snapshots. This action underscores Mars Protocol's commitment to rewarding its loyal users and cultivating a strong community around its platform. With Cosmos, they can now allow users to combine their positions and strategies into a single vehicle with a single liquidation point on any supported chain, with a new mechanism called Rovers, which is a major upgrade from the Field of Mars.

A look into Rovers

Essentially, Rovers are bundles of on-chain transactions represented by transferable NFTs.

Sounds a little complex, so let’s break that down into two parts.

“Bundles of on-chain transactions”

Rovers provide a similar “sub-account” experience you have on centralized exchanges, enable cross-collateralization and integration with other DeFi primitives, and give users more control and capabilities than centralized exchanges.

In a Rover “sub-account”, or also known as credit accounts, assets are cross-collateralized and a health factor is calculated based on the value and riskiness of the user's positions.

If the health factor falls below a certain threshold, a liquidation engine incentivizes third parties to pay back the debt.

“Transferable NFTs”

These credit accounts are represented by NFTs and are limited to interacting with whitelisted contracts. A user can have one or multiple credit accounts, and the architecture is modular and extensible, allowing for new protocols and integrations to be added.

Using NFTs opens up a few possibilities, such as:

  1. Creating an on-chain identity through net worth, health factor, and P&L — ultimately enabling social features such as leaderboards and copy-trading.
  2. Creating a market for users to sell or transfer their credit account to another user, or fractionalize it into pieces and sell or distribute it through a smart contract.
  3. Tracking of credit scoring from on-chain behavior and competence.
A picture which show Mars Protocol from the Cosmos Ecosystem and their Rovers

Mars Hub

Now, you’re probably wondering, “Why Cosmos?”

This is because the Mars Hub utilizes Cosmos interchain features for omnipresence and flexibility, in which the Mars Hub is a central “hub” in a “hub and spoke” design, where other chains act as “spokes.”

A picture which show the Hub of Mars Protocol from the Cosmos Ecosystem

The Hub administers activity on its outposts, governing all smart contracts, receiving fees, and distributing them to participants. It is similar to a fast food franchiser, with traders interacting directly with the outposts for liquidity.

Foundation of Mars: The Red Bank

While Rovers is an exciting concept that will soon be battle-tested on Cosmos, let’s look at the foundation of Mars, the building blocks on which these Rovers will function.

For that, we dive into the Red Bank — a peer-to-peer, decentralized, autonomous token lending/borrowing smart contract — which can be found in every Outpost.

Stakeholders of the Red Bank

First, let’s examine who will use the Red Bank and what they do.

A picture which show the stakeholders of the Decentralized Money Market called Mars Protocol from the Cosmos Ecosystem
Red Bank’s stakeholders

The Red Bank deployment for each outpost involves five different stakeholders:

  1. Validators (aka Martian Council) and Stakers, who use $MARS coins to stake on the Mars Hub network, help manage Outposts, add new features, set risk parameters, and earn revenue from the revenues of the protocol.
  2. Lenders deposit tokens into the Red Bank to earn token rewards known as yield, or “APR/APY” that borrowers fund.
  3. Collateralized borrowers are also lenders since they borrow tokens from Red Bank using their deposits as collateral.
  4. Contract-based borrowers use smart contract systems that the Martian Council has approved to take out loans from the local Red Bank without the need to over-collateralize (aka Field of Mars). Instead, the Red Bank holds a lien on the borrowed tokens, which can be liquidated if the loan is not repaid.
  5. Liquidators are third parties that can take over the debt of users who don't have enough collateral and receive a fee. They can also take over debt from C2C Borrowers who have fallen below their required LTV ratios and pay the proceeds back to the Red Bank.

Cool — but what can you do in the Red Bank?

Collateralized Borrowing: Just like any other bank

As the name states, the Red Bank is a bank that facilitates borrowing and lending for stakeholders (2) and (3), except the difference between the Red Bank and regular banks is that this borrowing is done autonomously with no need for any facilitator.

When borrowing, their deposits must exceed the value of the tokens they borrow.

The first outpost will support ATOM, OSMO, and axlUSDC, but other assets can be proposed to be listed, and the Martian Council will set risk parameters and assess the riskiness of assets.

Below are two examples of how people would go about borrowing and the risk parameters alongside liquidation parameters.

Borrowing volatile assets with stable collateral

A picture which shows borrowing of volatile assets with stable collateral from the Decentralized Money Market called Mars Protocol on the Cosmos Ecosystem

Borrowing stable assets with volatile collateral

A picture which shows borrowing of stable assets with volatile collateral from the Decentralized Money Market called Mars Protocol on the Cosmos Ecosystem

Contract-Based Borrowing: Furthering the DeFi standard

In Mars v2, contract-to-contract lending (C2C) lending/contract-based borrowing is more powerful than the former Field of Mars, as the primary C2C borrower will be done through the credit manager contract through the use of Rovers.

Essentially, this allows for quick deployment of more pre-defined automated strategies that generate yields for users through vaults — which is a container that supports auto-compounded yield generation capabilities on any supported chain — without having to create new technical architectures every single time a new vault or chain is proposed to the Martian Council.

Field of Mars

Currently, only the “Field of Mars” vault, or leveraged yield farming, has been documented and will be supported upon the deployment of the Hub and on Osmosis as an outpost.

Upon depositing into the vault, a credit account is created, and similar to our first picture of the Field of Mars, below is how one would go about leveraging with the OSMO-ATOM LP.

A picture which shows the Field of Mars from the Decentralized Money Market called Mars Protocol on the Cosmos Ecosystem

I assume that soon, more vaults with varying strategies will be implemented through governance quickly, as the current technical architecture of Mars allows for much more flexibility.

Safeguarding the Red Bank: Setting Efficient Parameters

Now, let’s look at how the parameters have been set for efficiency and how it protects the Red Bank and its users.

Interest Rates

This is simple, and it has not deviated at all since the last deployment of Mars.

A picture which shows the Interest Rate settings from the Decentralized Money Market called Mars Protocol on the Cosmos Ecosystem

The Red Bank uses a two-slope interest rate model pioneered by Aave and Compound. This model aims to discourage borrowing past a certain level by accelerating the interest rate.


The Red Bank offers incentives to liquidators to help them repay debt.

The Health Factor (HF) formula is used to determine the health of a position in the Red Bank. If an account has borrowed more than the adjusted collateral value of its assets, its HF will be less than one, and it will need to be liquidated. Go here to read more about the liquidation mechanism formula.

In liquidating, a third-party liquidator uses on-chain data to identify an account with a health factor that is below 1, and a debt asset they wish to pay back.

They make a payment of up to the close factor and receive a portion of the user's collateral equal to the debt repaid plus a liquidation bonus.

Flow of Liquidation

Here’s the example by Mars Protocol on their flow of liquidations.

Let’s say that a user has an account with Red Bank, but over time, the value of their deposit decreases. This now causes their account to become eligible for liquidation.

A picture which shows the first flow of liquidation from the Decentralized Money Market called Mars Protocol on the Cosmos Ecosystem

Following that, a liquidator then pays off some of a user's debt, and the user keeps the rest of the debt plus their original deposit, minus a 5% liquidation bonus for the liquidator.

A picture which shows the second flow of liquidation from the Decentralized Money Market called Mars Protocol on the Cosmos Ecosystem

Liquidation for Rovers and Vaults

Here, the liquidation mechanism is the same, with the only difference being that the liquidations occur directly within the liquidator's credit account instead of the user’s wallet.

This architecture also allows liquidators to use the credit manager to borrow funds required to pay down Red Bank debt in a single transaction, which works like a flash loan to facilitate liquidations.

Safety Fund

In the case of shortfalls in the first version of Mars that was launched on Terra, xMARS was used to backstop the protocol. However, a safety fund will be implemented in this new version to account for shortfall and illiquidity events.

The Safety Fund has been created to potentially mitigate losses to Red Bank depositors in the event of a shortfall event and will receive 10% of total protocol fees from launch (more on that in the value flow below)

Mars Timeline… and airdrops; wen?

All of that seems interesting, but the most pressing question right now is, “wen Mars launch, and what are they launching” and “wen airdrop?”

As seen from the tweet above, the Mars Hub will launch on the 31st of January, alongside the $MARS token that will be airdropped, shortly followed by the MARS/OSMO LP that will come on the 3rd of February and the Red Bank on Osmosis in early February.

A picture which shows the rollout of the Decentralized Money Market called Mars Protocol on the Cosmos Ecosystem

This will then be followed by the leveraged-yield farming dependent on liquidity — as Osmosis-based credit accounts won't support cross-collateralized strategies in the Fields of Mars on launch — and finally, Mars outposts on other chains.

Who is eligible for the airdrop?

Upon the launch of Mars Hub, 64.4 million $MARS tokens will be unlocked and available to those who held MARS on two snapshot occasions; one before the depeg of Terra USD and one after.

  1. Snapshot 1: Block 7544910 (May 7, 2022, ~11 a.m. EST)
  2. Snapshot 2: Block 7816580 (May 28, 2022, ~11 a.m. EST)

$MARS Tokenomics & Value Flows

Now let’s cover the tokenomics of $MARS, the various vesting followed by value capture of the $MARS tokens.

A picture which shows the tokenomics of the Decentralized Money Market called Mars Protocol on the Cosmos Ecosystem

The maximum supply of MARS tokens will be 1 billion, and the token allocation is as follows:

  • Airdrop (64.4M, 6%): To be distributed to all MARS token holders on Terra Classic as described above. These tokens will be fully unlocked and claimable upon genesis.
  • Community Pool (635.6M, 64%): To be distributed at the community's discretion. Some use cases of this pool of funds could include incentivizing staking/lending/borrowing, token grants, and other community-building programs.
  • Mars Contributors (300M, 30%): All builder-allocated MARS, which were locked in smart contracts, are scheduled to unlock around September 1, 2023 — where one-third of builder tokens will unlock, and the remaining two-thirds will begin unlocking on a linear daily basis over the following 24 months.

Value flow of $MARS

80% of “interest” payments will go to Red Bank lenders, and 20% will be split between the Safety Fund and stakers on Mars Hub, with a commission taken by validators.

A picture which shows the value flow of the Decentralized Money Market called Mars Protocol on the Cosmos Ecosystem

Interest payments to the Safety Fund will be swapped to Axelar USDC and sent to Mars Hub, while payments to validators will be swapped to MARS and split between validators and delegators.

Thoughts on Mars Protocol?

Money Markets are essential pieces of any ecosystem, and in particular, the Cosmos ecosystem has had no dominant money markets like Aave for Ethereum.

Unlike other money markets, with typical features that you would expect out of a money market, Mars has a “make it or break it” function that might allow for Mars protocol to be the dominant Money Market for Cosmos, which is their use of NFTs for Rovers.

If done right at their first outpost in Osmosis, it would bring about a powerful use-case for the Cosmos ecosystem and the Interchain that is easily replicated throughout the other Cosmos ecosystem chains — in the future — with the ability to bring about social features as seen in traditional CEXes on-chain, in return for either “yield reserved for winners” or on-chain NFTs.

Preparing for a rough start

However, I also acknowledge that the start for Mars Protocol will be rough because on launch, 6% of MARS tokens will be unlocked — and of which the recipients of these tokens are users who have been rekt by the Terra situation, which might see $MARS tokens getting sold as users try to recoup their past losses and re-position themselves for the near future.

In defense of Mars, though, there will be incentives for staking your tokens and providing LP tokens during the start of the launch of the Mars outpost on Osmosis, which might flatten the selling curve, as pointed out by CryptoStreamHub.

Last but not least, we’ll also have to consider the fact that it will take a while before all the functionalities of Mars roll out, so the fees generated from the platform itself might slowly increase — and this is also supported because when Mars was on Terra, it only captured 1.8% at its peak, despite being the only Money Market and one with groundbreaking features such as dynamic interest rates and Field of Mars back then.

But I am genuinely excited to see how this protocol will play out in the future, especially with their use of NFTs for Rovers and how the markets will react.

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