Prop 193: wstETH Listing - Osmosis Outpost
mrc: 99 title: wstETH Listing - Osmosis Outpost authors: Johnny Wyles forum-url: https://forum.marsprotocol.io/t/1303
Summary
The objective of this proposal is to list wstETH (bridged via the canonical Lido bridge and recognized as the canonical wstETH on Osmosis) on the Red Bank’s Osmosis Outpost.
Motivation
We believe this is an ideal asset to be used as collateral and could generate considerable organic demand for the Red Bank on Osmosis. The main reason for this is that, as a liquid staking derivative, wstETH allows users to effectively use a representation of ETH across DeFi without sacrificing the staking rewards. As such, this removes the current cost of opportunity of using ETH across DeFi and could catalyze more organic usage for the Red Bank.
Risks
In the sections below, we’ll explore the risks associated with listing wstETH and the proposed risk parameters for the listing.
Technical Risk
In terms of technical risk, the asset meets the minimum requirements suggested by the Mars risk framework:
Centralization Risk
There are some centralization risks worth noting:
- The satellite contracts on Neutron, which represent a critical part of the wstETH bridging infrastructure, are still owned by a multisig and represent an important centralization risk. If this multisig were to be compromised, be it via regulatory pressures, a hack/exploit or just multisig member misbehavior, the asset could suffer significant consequences that could translate into drastic repricings that may expose Mars to bad debt.
- The Axelar Gateway contracts pose an important centralization risk for the asset. If the Axelar multisig that controls these contracts were to be compromised, be it via regulatory pressures, a hack/exploit or just multisig member misbehavior, the asset could suffer significant consequences that could translate into drastic repricings that may lead to protocol insolvency. While control over these contracts is expected to be handed to the DAO over the coming weeks, as of now it’s still under the purview of the multisig.
The following table summarizes the complete list of requirements and their status:
Oracle Risk
We propose to use the Pyth wstETH/USD feed to price wstETH.
Note that this implementation uses the price of the underlying asset, rather than the bridged asset. This is important given that, if anything were to happen to the bridge (such as a loss of assets), Mars would effectively be unaware of it and would still be pricing the bridged asset as the underlying, opening the protocol to potential losses. This is a known but important risk. As such, we think the current implementation should be considered an interim one, as a more robust implementation that incorporates bridge proof of reserves is adopted.
Risk Parameters Suggestion
Following the methodology suggested by the Mars Risk Framework, we propose the following parameters:
- Max. LTV: 73%
- Liquidation LTV: 75%
- Deposit Cap: 50 wstETH
- Interest Rate Parameters:
- Optimal Utilization: 60%
- Base IR: 0%
- Slope 1: 10%
- Slope 2: 300%
- Liquidation Bonus: 10%
- Reserve Factor: 10%
- Usable as collateral? Yes
- Available to borrow? Yes
These parameters are identical to the parameters of the current wstETH listing on Neutron. Initial Listing Latest LTV adjustment
While the liquidity on Osmosis is two-thirds of the liquidity on Neutron, the concentration of this liquidity, coupled with the ongoing incentivization program, means that the risk of illiquid collateral is substantially lower that currently live.
Full liquidation on Osmosis demonstrating 16% slippage
Full liquidation on Neutron Astroport demonstrating 46% Slippage
Implementation
This is a signaling proposal, not an executable proposal.
The Mars smart contracts on the Osmosis chain are currently controlled by the Builder Multisig address. If this proposal passes, the builders will utilize their multisig to make the necessary parameter changes.