Mars Protocol is, a lending and borrowing platform on the Terra ecosystem. What's unique about their model is that they will be able to support non-collateralized lending. Spoiler: the collateral comes from what you use the funds for (like a mortgage)
What is @mars_protocol?
Mars is a lending and borrowing protocol on @terra_money.
Okay, so how is it different from @anchor_protocol (see below) or others?
shivsak on Twitter: "I've written a few guides on how to earn high interest on your stablecoins using #DeFi.By far, the easiest and most passive (but also high yield) way is @anchor_protocol, which currently pays out ~19.5% APY in UST.Let's see how that works. 🧶 🪡 👇 pic.twitter.com/GnbhvNf4o9 / Twitter"
I've written a few guides on how to earn high interest on your stablecoins using #DeFi.By far, the easiest and most passive (but also high yield) way is @anchor_protocol, which currently pays out ~19.5% APY in UST.Let's see how that works. 🧶 🪡 👇 pic.twitter.com/GnbhvNf4o9
Mars Protocol will have 2 forms of borrowing:
1. Contract-to-Borrower (C2B)
2. Contract-to-Contract (C2C)
C2B is regular non-custodial over-collateralized borrowing. This is basically the same as other lending & borrowing platforms like @anchor_protocol, @AaveAave, @screamdotsh, @HundredFinance, etc. Here's how C2B borrowing works..
In most DeFi lending and borrowing platforms, you provide collateral to the protocol in order to borrow funds. Borrowed funds can be used for anything you want (usually used to farm elsewhere). 1. Deposit collateral. 2. Borrow approved assets from the protocol. Borrowed funds must be less than Collateral Value * LTV. Ex: if Collateral = $100 of $LUNA & LTV = 80%, you can borrow $80 of $UST. 3. If collateral value falls and LTV > 80%, you get liquidated. If you're unfamiliar, this 🧵 should explain the general mechanics of liquidations (not specific to @mars_protocol).
Now, let's talk about Contract-to-Contract borrowing (C2C). This is where Mars really stands out. Suppose you borrow funds from @mars_protocol, and use the borrowed funds to provide liquidity on TerraSwap. What if you could use the TerraSwap LP tokens as collateral instead of requiring separate collateral deposits to enable borrowing? Then you wouldn't need to provide collateral in the first place. This solves a big problem with borrowing in DeFi: When you deposit collateral in order to borrow funds, the deposited collateral is tied up, and can't be used elsewhere. But if you can use LP tokens or other contracts as collateral, it opens up a lot of possibilities.
This is similar to a mortgage. 🏡 When you borrow money for a mortgage: • You put a 20% down payment on a house. • Bank gives you 80% as a loan. They can foreclose on the house if you default. The house (which you bought with the borrowed funds) is the collateral. Side note: I wrote a 🧵 about how real-estate can get tokenized using smart contracts. I think it's an interesting concept to open up your mind to the different use cases unlocked by smart contracts and #DeFi.
This form of lending is much more powerful than over-collateralized lending. You can borrow funds without depositing collateral, provided the funds are being used by a pre-approved smart contract. Mars Protocol has to pre-approve what it can accept as collateral.
Mars will start by enabling simple leveraged yield farming strategies for C2C borrowing, with the goal of eventually allowing all contracts the community votes for.
Example: to start, Mars will allow borrowed funds to be used for leveraged LPs.
Example of leveraged yield farming through MARS:
1. Supply a primary asset - ex:
2. Borrow a secondary asset - ex:
When you borrow funds for a leveraged LP strategy, there are 2 situations you need to prepare for. Case 1: The value of LP assets increases: If rewards from the LP + price appreciation is greater than interest accrued from borrowing, you are in profit. 🤑
Case 2: The value of LP assets decreases If the price of $LUNA falls, and your value of your LP tokens decreases to a value below the liquidation threshold, you will be immediately liquidated.
In the event of liquidation, borrowed
UST will be returned to @mars_protocol, the liquidator will take a fee, and any remaining
LUNA would be returned to you.
This application is just like leveraged farming on @TarotFinance or Alpha Homora.
But with Mars protocol, leveraged LPs are just one application.
The Mars lending pools can be used by borrowers for all kinds of smart contract applications in the future, as long as they were approved by the DAO.
Some other potential future applications of @mars_protocol:
• @NexusProtocol integration to lever up on $nLUNA
• Integration with @ApolloDAO or @SpecProtocol for leveraged LPs
• Margin trading
• Insurance products
All kinds of smart contracts can plug into Mars' C2C borrowing protocol, as long as they are approved by the community.
Mars Token Model
You can read more about the tokenomics and details in the docs: https://docs.marsprotocol.io/mars-protocol/
Mars Protocol Explained: A new kind of money market on Terra | shivsak
11/ This is similar to a mortgage. 🏡 When you borrow money for a mortgage: * You put a 20% down payment on a house. * Bank gives you 80% as a loan. They can foreclose on the house if you default. The house (which you bought with the borrowed funds) is the collateral.