Mars’ “High-Leveraged Strategies” (HLS) go live with up to 10x leveraged staking

Mars Protocol
6 min readNov 30, 2023

Mission briefing:

  • Specialized form of credit accounts on Mars v2 allow dramatically higher leverage for pre-specified use cases
  • First use cases support stATOM and stOSMO leveraged staking w/ up to 10x leverage
  • HLS markets could expand to other assets and strategies

Moment ago, Mars’ first “High-Leverage Strategies” (HLS) markets went live. These strategies enable leveraged staking with up to 10x leverage for two tokens: Stride Staked ATOM (stATOM) and Stride Staked OSMO (stOSMO).

Approved by Mars stakers last week, HLS markets bring maximum capital efficiency to very specific, highly-correlated strategies throughout the Cosmos.

Unlike existing Rover credit accounts, which let you lend and borrow any of the protocol’s supported assets, each HLS market targets a single use-case, and — by doing that — dramatically increases the amount of leverage a user can take on for that use-case.

Here’s how it works with the first two HLS strategies:

  1. Visit https://app.marsprotocol.io/hls-staking
  2. Mint and fund your special HLS credit account
  3. Supply stATOM or stOSMO into the relevant HLS market
  4. Select the amount of leverage you’d like to have on stATOM or stOSMO (up to 10x)
  5. Approve the transaction

On the backend, Mars will virtually “loop” your position until it hits your desired level of leverage. For example, if you deposit stATOM, the HLS market is designed to use it as collateral to borrow ATOM, then sell that ATOM for more stATOM — repeating the process until you hit your leverage target.

This approach effectively replicates the manual “looping” process. Importantly, though, because leveraged staking positions are so tightly correlated (i.e. stATOM and ATOM trade in lockstep), the risk of liquidation can be low.

That’s because if your collateral falls in value, so too does the value of your debt, and vice versa. That means these HLS markets can dramatically increase the amount of leverage in these positions…. taking them from a previous max of 3.33x all the way up to 10x.

That’s not all.

Remember, with liquid staking tokens (LSTs), users can benefit from price appreciation and the underlying staking yield. Stride, for example, is currently capturing and auto-compounding staking yields of ~9.01% for stOSMO holders. With up to 10x leverage on the underlying staking yield, users could potentially unlock APYs in the mid double-digits.

To calculate the actual APY, use the following formula:

(Staking yield * 10) — (Borrow rate * 9)

Let’s illustrate the calculation with stOSMO. Currently, the stOSMO staking yield is 9.01%, and the borrow rate for OSMO is 4.92%. With 10x leverage, that would generate a yield of around 45% per the following calculations:

(9.01% * 10) — (4.92% * 9) = 45.82%

Remember that rates are volatile and based on supply and demand. At the time of this writing, for example, the borrow rate for ATOM is higher than the native staking yield on stATOM.

That means entering the stATOM HLS market with 10x leverage would currently result in negative APY.

Let’s run through the numbers. At the time of this writing, stATOM’s staking yield is 12.74%, and the borrow rate for ATOM on Mars is 17.77%. That gives us the following negative yield:

(12.74% * 10) — (17.77% * 9) = -32.5%

That means entering the stATOM HLS market with 10x leverage would currently result in negative APY.

Let’s run through the numbers. At the time of this writing, stATOM’s staking yield is 12.74%, and the borrow rate for ATOM on Mars is 17.77%. That gives us the following negative yield:

(12.74% * 10) — (17.77% * 9) = -32.5%

That doesn’t mean Mars should eliminate the strategy, though, as users could enter the vault with no or low levels of leverage. Ultimately, the high borrow rates on ATOM highlight market inefficiencies that could change rapidly. Specifically, since the yield on Mars is approaching 10% for ATOM deposits, the protocol should attract new depositors over time. That would, in turn, push down the borrowing rate for ATOM, which could make the stATOM HLS market profitable with higher levels of leverage.

We also believe that the high borrow rate on ATOM could be because the Cosmos Hub (ATOM) community recently voted to cut ATOM’s inflation rate, and the market will adjust to new rates over time.

Keep in mind, all “expected APYs” projected by the simulations might not actually be achieved. Higher leverage also increases the likelihood of liquidation if the assets were to decorrelate for some reason.

HLS Risks and Parameters

HLS markets come with three new risks for Mars:

  1. Smart contract risk: Any new feature on Mars comes with the possibility of unforeseen implementation bugs and smart contract vulnerabilities. The materialization of these risks could translate into loss of funds for users. While the code being used has been audited, this obviously doesn’t guarantee that it’s free from bugs. As such, we suggest caution when using this new feature, especially within the first months of its implementation.
  2. Risk parameter-related vulnerabilities: If the risk parameters are set too aggressively, the liquidations system might not work properly which could translate into protocol insolvency. While we believe the proposed parameters are conservative enough, users should always have this risk in mind when using the protocol.
  3. Liquidation risk: Higher leverage means a greater likelihood of liquidation, which poses risks to users of the HLSs and to the Mars system (risk of bad debt if liquidations do not occur as expected/desired).

The risk parameters below apply for both markets.

The future of HLS on Mars

If HLS markets prove popular on Mars, additional markets could be enabled. There are obvious candidates for leveraged staking markets including Stride Staked dYdY (stDYDX), Stride Staked Celestia (stTIA) and Lido Wrapped stETH (wstETH).

By narrowing the use case for some credit accounts, though, HLS represents an entirely new category of offerings on Mars. That means the concept could potentially be expanded in other ways as well. For example, specific markets could use Osmosis’ new “supercharged liquidity” to build high-leverage strategies on top of concentrated liquidity pools — particularly pools with pegged assets such as stablecoin pairs.

Best of all, all HLS markets could benefit the entire Mars ecosystem. Although isolated to specific strategies, HLS markets would be borrowing assets from Mars’ protocol-wide lending pool in the Red Bank. That means they could push up borrowing demand (and with it the APY) for all Mars lenders. In turn, that could attract new depositors, which would deepen liquidity in Mars lending pools and bring new users to the Red Planet.

Rover credit accounts created an entirely new primitive for the Cosmos. Now, they’ve been customized to voyage into entirely new (and potentially much more rewarding) terrains.

👉 Initiate your HLS positions now at app.marsprotocol.io/hls-staking

- Mission Control

🔴

Follow Mars on Twitter, join the Mars Discord for community support, and subscribe to Mars’ email newsletter for the latest updates from Mission Control.

About Mars

Mars is a novel interchain credit protocol primitive that enables non-custodial borrowing and lending for the Cosmos ecosystem and beyond. Its hub and outpost architecture allows Mars to operate on any chain in the Cosmoverse, and enables a new primitive: the Rover. Live now, Rovers give their pilots DeFi superpowers to engage in virtually every governance-approved activity they might encounter on a centralized exchange: spot trading, margin trading, lending and borrowing — all in a single decentralized credit account represented by a transferable NFT. Your Rover awaits at app.marsprotocol.io.

DISCLAIMER

Some or all features of mars v2 may not be legal to use in certain jurisdictions, including in the United States with respect to leveraged transactions. No person is solicited to use Mars v2 or receiving an offer to enter into any transaction, through this post or otherwise. Users are responsible for ensuring their own legal compliance and may be at risk of serious liabilities for violating their local laws or the laws applicable to other users interacting with them on a peer-to-peer basis through Mars v2. Remember, Cosmos, Neutron, Osmosis and Mars are experimental technologies. This post is subject to and limited by the Mars disclaimers, which you should review: https://docs.marsprotocol.io/docs/overview/legal/disclaimers-and-disclosures

--

--

Mars Protocol

Mars is a credit protocol for the Cosmos ecosystem. Official site: https://marsprotocol.io