Changelog
- December 7th 2023, exclusivity terms have been removed.
Summary
- The Neutron Foundation will grant $3M USDC in quarterly installments to the Mars Protocol Foundation over two years to fund the development and growth of the Mars Protocol. See Annex A for more details.
- The Mars Protocol Foundation will grant 60,000,000 MARS tokens to the Neutron Foundation. The granted MARS tokens will unlock linearly over six years and granted tokens may be used for governance during the lockup period. See Annex B for more details.
- The Mars and Neutron Foundations will work to ensure the granted MARS tokens are used for the mutual benefit of both the Mars and Neutron protocols.
- The Mars Protocol Foundation will commit to proposing and supporting migration of the Mars Governance from Mars Hub (Marsâ governance chain) to Neutron, and will further commit to proposing and supporting the following targets, all subject to final approval by the Martian Council (âMars Protocol DAOâ) (where applicable):
- Mars v2 (including functionality of the âred bankâ and âfarmâ support) will be deployed on Neutron by the end of Q3 2024.
- Mars governance and the MARS token will move to Neutron by the end of Q4 2024.
- From the 1st of January 2024, major protocol upgrades will be launched on Neutron first. See Annex E for exclusions. If Mars should build a perps implementation, this would be deployed on Neutron first.
- Directing 10% of revenue of the Mars Protocol DAO for a period of ten years to be used for the mutual benefit of both the Mars and Neutron protocols. See Annex C for more details.
- The Mars Protocol Foundation and Neutron Foundation would agree to collaborate deeply (see Annex D), including as follows:
- Mars Protocol Foundation will provide feedback on the platform and inform development priorities to maximize the networkâs value to dApp builders.
- Neutron Foundation will support tailoring the network to best support Mars and other applications, such as by improving performance, enabling in-protocol oracle functionality, etc.
Introduction
In September 2022, we presented our thesis on why Cosmos offered the best architecture to build DeFi products on top of. Specifically, we argued that appchains offer a set of intrinsic advantages that make them the more likely architecture to win over the long run. These advantages include lower and more predictable costs (better UX), sovereignty (lower platform risk), higher value capture (since no revenue leaks to the underlying layer) and customizability. These features, if used correctly, should allow appchains to offer innovative, highly differentiated products that are better than whatâs possible to be delivered as standalone applications on top of an L1.
We believe the appchain thesis as a whole remains as strong as ever. What has changed since we wrote that thesis, however, is the appchain infrastructure competitive landscape. In particular the Ethereum ecosystem has developed attractive alternatives for those seeking the benefits of customisation such as OP Stack, ZK Stack, and Polygon Supernets. Given accelerating adoption of these alternatives we believe Cosmos has a short window of opportunity to react and not be overshadowed by Ethereum in a paradigm in which it had the initial advantage.
We believe more consolidation, collaboration, and alignment is necessary within Cosmos to compete. Specifically, itâs necessary for the key teams to align around a shared vision, and collaborate to achieve it.
Proposal
Mars and Neutron have synergistic visions:
Mars intends to build the winning DeFi super-app. An app that allows users to access the best of DeFi from a single, delightful UX: from spot and margin trading, to perps, to DeFi-native yield generating activities. An app that can rival and outcompete the best CEX experience.
Neutron is the best platform to build Cosmos apps, providing many of the benefits of an app-chain without the cost, and providing features enabling apps to be better.
While both Mars and Neutron have worked closely together during the last few months, we believe thereâs an opportunity to strengthen the bond between the two projects and further align efforts. Deeper collaboration between both projects will allow both Mars and Neutron to achieve more.
Neutron can benefit from having a flagship DeFi project and a core leverage primitive to build an ecosystem around which wouldnât be possible without Mars. Having Mars v2 deployed on Neutron can open up a host of opportunities such as:
- Portfolio Management utilizing fractionalized NFT credit accounts
- Constant leverage tokens (eg. 3x BTC or 5x stETH)
- Liquidations marketplace
- Retail focused âearnâ products utilizing credit accounts in a delta neutral fashion
- Copy and/or social trading
- Yield arbitrage vaults
- And moreâŚ
Mars can leverage synergies to achieve its ambitious vision faster by focusing efforts on one chain while spending less time on infrastructure. Particularly when working in tandem with a synergistic chain such as Neutron.
To date, Mars has pursued a multi-chain model that requires additional resources and effort to implement and maintain. However, given our belief in the need for a new strategy within Cosmos, we no longer feel that this is the best approach. Specifically, we believe that focusing efforts on a single chain, at least in the medium term, while not maintaining Mars Hub, offers Mars the best chance to succeed. This positions Mars such that it only needs to commit to a single home. This proposal discusses how Neutron can be that home.
We believe the best way to make this happen is to align incentives at the token level with mutual token grants. Both grants would be contingent on approval of both the Neutron DAO and Mars Protocol DAO. If approved by the Neutron DAO, the Neutron Foundation would make the grant in stablecoins to the Mars Protocol Foundation (as further outlined in Annex A). If approved by the Mars Protocol DAO, the Mars Protocol Foundation would make the grant to the Neutron Foundation in MARS tokens (as further outlined in Annex B).
Thereafter, the parties would work to support combined efforts in which (i) the Mars Protocol will grant 10% of protocol revenue, denominated in stablecoins, to the Neutron DAO Treasury and (ii) with such proceeds to be used for the mutual benefit of Mars and Neutron, together with additional commitments, as further outlined in Annex D.
The grant received by the Mars Protocol Foundation, which is in the process of being formed, would be utilized by the Mars Protocol Foundation to further the development of the Mars protocol over the coming two years. To ensure the long-term alignment of the projects and their respective communities, appropriate conditions, commitments, milestones, and distribution mechanisms, each Foundation will enter into, and any actions taken in furtherance of this proposal will be contingent upon, definitive written agreements that will govern the terms of the mutual grants contemplated in this proposals, including as proposed in Annexes A, B, C, D and E.
In the following sections, weâll explore what we believe are the most exciting upcoming features of Mars.
Full Fledged Credit Accounts
Leverage is a fundamental primitive to any DeFi ecosystem. We believe the credit account is the most elegant design to enable leverage at scale. There are two main properties that make credit accounts especially well suited to achieve this function.
First, credit accounts are flexible and allow leverage to be added to any DeFi product. When a DeFi primitive is incorporated into the credit account, users are immediately able to interact with that primitive using leverage. Thus, a DEX offered through the credit account becomes a leverage trading product; staking through the credit account becomes leveraged staking; providing liquidity through the credit account becomes leveraged yield farming and so on. Note, however, that leverage isnât mandatory when using credit accounts. Users can still interact with all whitelisted applications without using leverage. In this sense, the credit account is a superset of all the underlying DeFi applications it aggregates.
Second, positions within credit accounts are cross-collateralized by default. What this means is that any position within an account can be used as collateral to open and guarantee the solvency of other positions within the same account. For example, a margin long trade on Astroport could be used as collateral to open a leveraged staking position on Stride, all within the same UI. Without the credit account as the middleware connecting both Astroport and Stride, this transaction wouldnât be possible since thereâd be no underlying mechanism to ensure the solvency of the position. Cross-collateralization naturally translates into more capital efficiency, more use cases and a better UX.
Under the hood, the credit account performs two critical functions. The first one relates to tracking the collateralization level of every account, taking into consideration the riskiness of every position within the account. The second one is facilitating the liquidation process when an account becomes undercollateralized. Both these functions are intended to guarantee the solvency of the system.
With any system that handles leverage, especially a cross-margin one with multiple supported instruments and actions (spot, margin, lending, borrowing, leveraged LPing/staking, perps), risk assessment and parametrization is extremely important to maximize capital efficiency while ensuring system solvency. Mars contributors have thought deeply about risk and produced extensive research on areas including oracle, liquidity, and market risk. On oracle risk, the Mars team has published research on TWAP manipulation (here and here), as well as pricing of derivative assets (here). Mars contributors also produced a custom deposit caps methodology to address liquidity risk, in addition to an open-source risk framework that serves as the basis for listing assets and setting their risk parameters. We believe all these tools and know-how, which have served as the risk backbone of Mars, are fundamental to be able to offer a robust product.
We see credit accounts as a core primitive of the fledgling Neutron DeFi ecosystem, one which other projects can build around, and one when combined with Neutronâs hopefully deep liquidity results in Neutron being an attractive place to come and build.
And this is just the beginning. As said before, the credit account is a structure that enables any DeFi primitive to be aggregated. In the following section weâll explore one additional, exciting use case weâre thinking about incorporating into Mars credit accounts.
Perpetuals
No crypto super-app can call itself that if it doesnât offer perps. Perps are undeniably the crypto product with the best PMF.
Weâve already defined a perps design that we believe, by itself, would have a good chance of success. The design makes sense for Cosmos, is scalable, strikes the right balance between complexity and usefulness and has already been battle tested to a certain extent.
The productâs architecture is based on an oracle-based model where a single staking pool of assets acts as the temporary counterparty to every trade. This model is easily scalable since all thatâs needed to launch a new market is an oracle price feed. No market makers or underlying token liquidity are needed. This is particularly useful within Cosmos, since it would allow Mars to offer synthetic trading on any asset with an oracle price feed; even assets with zero liquidity on Neutron or Cosmos (or any other chain for that matter). In other words, this model will significantly increase the number of tradable assets on Neutron. This means users who want to trade a certain asset with low or no onchain liquidity wonât have to leave the chain in order to do so, since theyâll be able to synthetically do it from the comfort of Neutron.
However, the idea is not to offer solely a perps product. The idea is to offer a perps product within Mars credit accounts. By doing this, we offer a product thatâs better than the sum of its parts. Itâs no longer perps. Itâs a super-app that offers perps. This means that users will be able to cross-collateralize their perps positions with every other asset/activity supported within credit accounts. This includes spot assets, lending and borrowing, leveraged staking, yield farming positions and LP tokens, among others.
On the other hand, this architecture will allow for interesting emergent use cases that are simply not possible with standalone perps products. Some examples weâre excited about include:
- Delta neutral leveraged staking: User borrows a stablecoin, buys the LSD (i.e. stATOM) and shorts the underlying (ATOM) using perps.
- Leveraged basis trade: User borrows a stablecoin, longs a certain asset (i.e. NTRN) and shorts the same asset using perps.
- Leveraged inverse basis trade: User borrows a certain asset, sells it for a stablecoin and longs the same asset using perps.
- Delta neutral leveraged yield farming: User borrows a stablecoin and buys the assets of the underlying pool, while at the same time shorting those assets using perps.
While we think the above use cases are exciting, weâre also confident that theyâre just the tip of the iceberg. We believe user/developer imagination and tinkering will create use cases for this product that we donât even know are possible right now.
Conclusion
Competition within the appchain infrastructure space is heating up. Elements within the Ethereum ecosystem, in particular, are accelerating their efforts to dominate the emerging appchain world. Against this backdrop, we believe Cosmos has a relatively short window of opportunity to react and not be relegated within a paradigm it initially dominated.
We believe a right step in that direction is to deepen the coordination and alignment between different Cosmos teams, particularly those who have synergistic visions, to work closer together to develop innovative, differentiated products that attract and delight users. Throughout this document we proposed a mechanism to more deeply align Mars and Neutron.
The acceptance of this proposal will align both projects at the token level. On the one hand, this would mean direct participation from Neutron in Mars governance and on the other hand, this would reinforce Marsâ commitment to Neutron, particularly in relation to future endeavors.
As covered in the document, Mars has some exciting and ambitious features in its roadmap. We believe these features will make Neutron better by making Mars better and vice versa.
By working together, we believe the Mars and Neutron communities can accelerate development in the Cosmos as the ecosystemâs focus shifts toward widespread adoption and the deployment of truly novel DeFi primitives.
All forward-looking statements set forth herein are subject to numerous risks, assumptions and uncertainties, including that the detailed terms of agreements between the Mars Protocol Foundation and Neutron Foundations could differ from the verbiage of the proposals and will nevertheless be the binding definitive terms of the two Foundationsâ agreements, and that the Mars Protocol DAO and/or the Neutron DAO could fail to approve some or all initiatives agreed to be supported by the Mars Protocol Foundation and/or the Neutron Foundation, in which case actual events may differ from expected events as described herein.
ANNEX A
NTRN Grant from the Neutron DAO to the Neutron Foundation
This proposal requests 10,000,000 NTRN from the Neutron DAO to enable the Neutron Foundation to enter into a grant agreement with the Mars Protocol Foundation on behalf of their respective DAOs.
The requested amount was calculated using the rounded thirty day lookback TWAP for NTRN ($0.30 per NTRN). The NTRN will be held by the Neutron Foundation to be distributed to the Mars Protocol Foundation according to the milestones outlined below.
Any NTRN remaining once distribution of the full grant amount to the Mars Protocol Foundation is complete will be returned to the Neutron DAO Treasury. If, due to price volatility, the NTRN provided to the Neutron Foundation is insufficient to perform the distributions, a governance proposal will be submitted by the Neutron Foundation to the Neutron DAO to request the additional NTRN required to fulfill the distribution.
Grant from the Neutron Foundation to the Mars Protocol Foundation
Proceeds from the grant shall be exclusively used for the benefit of the Mars Protocol Foundation to fund the development and growth of the Mars Protocol and specifically exclude investment, debt repayment, and other activities unrelated to the Protocol.
| Quarters | Payment Date | Amount | Cumulative |
|---|---|---|---|
| 0 (Prop executed) | January 1st, 2024 | $600,000 | $600,000 |
| 1 | April 1st, 2024 | $400,000 | $1,000,000 |
| 2 | July 1st, 2024 | $400,000 | $1,400,000 |
| 3 | October 1st, 2024 | $400,000 | $1,800,000 |
| 4 | January 1st, 2025 | $400,000 | $2,200,000 |
| 5 | April 1st, 2025 | $200,000 | $2,400,000 |
| 6 | July 1st, 2025 | $200,000 | $2,600,000 |
| 7 | October 1st, 2025 | $200,000 | $2,800,000 |
| 8 | January 1st, 2026 | $200,000 | $3,000,000 |
| Total: | $3,000,000 | $3,000,000 |
ANNEX B
MARS Grant from the Mars Protocol DAO to the Neutron Foundation
| Amount | Milestone | Vesting | Lockup |
|---|---|---|---|
| 60,000,000 MARS | Ratification of this proposal by the Mars Protocol DAO | Linear, from the passing of the proposal to its second anniversary. | Linear, from the passing of the proposal to its sixth anniversary. |
MARS price is set by the 90 day TWAP using Coinmarketcap data from the 10th of August 2023 to 7th of November 2023, which equals $0.0500606073655556 or an execution price of $0.05, rounded to the nearest cent.
MARS tokens allocated to the Neutron Foundation will initially be custodied by a Mars Hub multisig controlled by members of the Mars Foundation. These MARS tokens will be staked in Mars Hub governance, and an authz generic grant of govv1.msgVote will be granted to an appointed second multisig or EOA owned by the Neutron Foundation. This will allow the Neutron Foundation to vote while Mars governance still resides on Mars Hub.
The terms of vesting and unlocking outlined in this proposal will be legally enforced by the definitive agreements between the respective Foundations until Mars Hub is migrated and a definitive technical solution is available.
During migration of governance from Mars Hub to Neutron, the Mars Foundation will claim the staking rewards received from staking the MARS token grant, and send the MARS accrued through staking rewards back to the Mars community pool.
Once Mars governance has migrated to Neutron, a smart contract solution will enable the Neutron Foundation to take custody of these MARS tokens as a vesting + unlocking MARS token grant that will retain the ability to vote in Mars governance, but will not receive governance rewards.
MARS tokens allocated to the Neutron Foundation will be fully owned by the Neutron Foundation upon vesting, pursuant to the schedule above, but are non-transferable until lockup expiration.
Through the lockup period, MARS tokens allocated to the Neutron Foundation may be used to vote, but are excluded from accruing tokens from Mars Protocol generated revenue.
The Foundations pledge to work in good faith to ensure that MARS tokens allocated to the Neutron Foundation pursuant to the grant will be used exclusively in a manner which supports Mars Protocol and/or the MARS token itself. This includes mechanisms such as adding liquidity to MARS liquidity pools (e.g. MARS-NTRN, MARS-USDC, MARS-wstETH, MARS-BTC, etc.) or by increasing the liquidity of assets listed on Mars Protocol (to facilitate the safe raising of lending caps, e.g. wstETH-USDC, etc.).
ANNEX C
Revenue Share by Mars Protocol DAO
Mars Protocol DAO will signal its support for the undertaking of the necessary steps to programmatically direct 10% of protocol revenue generated by all Mars Protocol outposts, denominated in stablecoins, to a vehicle (such as a multisig or BORG) with joint representation of the Foundations to administer the funds and help ensure the proceeds are used to the benefit of both Mars Protocol DAO and Neutron DAO for a period of ten years. The revenue share will begin upon the date of the deployment of Mars v2 on Neutron (subject to earlier termination if the underlying agreement is terminated).
The respective Foundations will work in good faith to support final approval by Mars Protocol DAO and implementation of the revenue share, including implementation of appropriate technical mechanisms.
ANNEX D
Mutual Commitments
Accompanying the mutual grants would be a set of commitments made by the respective Foundations, as further set forth in the written agreement, embodying the deeper relationship. Where DAO governance is required to perform a commitment (as applicable), the parties will work together to support such proposals:
-
Mars Protocol would move its governance and token to Neutron by Q4 2024 in addition to launching Mars v2 on Neutron by Q3 2024.
-
All major protocol upgrades (subject to Annex E carve outs) are to be deployed on Neutron first.
-
Additionally, if Mars should build a perps implementation, Mars would commit to deploy as of Q3 2024 and, as part of the proposal, Mars Protocol Foundation would commit in definitive agreements for the grant for the implementation to be deployed on Neutron first.
-
Neutron would commit to help facilitate an MEV resistant and efficient liquidations market (ex: performing liquidations at the beginning of the block), improve block speed (at least dropping the latency to 2s block time) to allow for higher leverage and lower risk of liquidations in Mars Perps, and build an account abstraction primitive (tying wallet keys to Google Oauth) with CCTP & Metamask Integration to allow seamless onboarding of web2 users.
-
Mars Protocol Foundation to give input to Neutronâs feature roadmap with the goal of making Neutron the best platform to build Cosmos apps.
-
Collaborating to ensure grant proceeds and revenue share proceeds are to be used in accordance with Annex A, B and C, as applicable, including defining further processes and standards to support and ensure that, where required, such proceeds are used to the benefit of both Mars Protocol DAO and Neutron DAO.
ANNEX E
Maintenance Carveouts
Ongoing maintenance on Outposts outside of Neutron will be excluded from being considered a âmajor protocol upgradeâ. These include:
- Asset Listings & Delisting (Both Individual Tokens as well as Vaults)
- Risk Parameters Updates & Changes
- Vault Integrations
- Or any other items as may be mutually agreed upon by the parties