Mars Protocol: Cosmos' DeFi Superapp

Introduction

Despite many in crypto believing DeFi’s future, a DeFi super app has yet to be created that can rival a centralized exchange’s (CEXs) user experience. The DeFi experience is fragmented, where spot and derivatives trading, lending, and yield farming all happen on separate applications. Other than more liquid markets, CEXs are able to offer cross-margin where traders can use different assets across their sub-accounts to maintain margin requirements on levered long or short positions. Additionally, the inability to trust on-chain borrowers has forced DeFi to offer capitally inefficient overcollateralized lending services.

In the real world, debt obligations are enforced through legal contracts whereby if a borrower defaults, the lender can take ownership of a borrower’s assets until they are made whole. With contract-to-contract DeFi lending, a similar experience can be created on-chain. As a separate point, if a borrower’s creditworthiness in the traditional finance system is determined by a credit score that looks at a borrower’s financial history and outstanding debt, a DeFi application should be able to track an address’ on-chain history and current positions to do the same.

Mars protocol is attempting to solve these pain points by bundling a suite of financial services in one application. With the recent blowup of FTX, the need for an on-chain CEX-like experience is sorely needed as more users flock to self-custodied wallets.

Mars Overview

Originally built as a dApp on Terra that facilitated contract-to-contract (C2C) lending for leveraged yield farming strategies, the development team led by Delphi Labs decided to build out an appchain post-Terra collapse. By leveraging whitelisted contract-to-contract lending, Mars v1 could claw back a borrowers’ funds deposited into a smart contract in the event of a near-default. This allowed borrowing without directly providing collateral, creating more capital-efficient markets.

Built on the Cosmos SDK, Mars v2 is a generalized credit protocol that leverages a hub and spoke model to control smart contract deployments, called Outposts, on other Cosmos chains. The Mars central hub governs parameter changes and smart contract upgrades and collects revenue from each Outpost. Outposts are a bundle of smart contracts that allow a user to borrow/lend, invest in automated strategies approved by governance, and perform both spot and margin trading. In early February 2023, Mars launched its first Outpost on Osmosis, as the largest DeFi liquidity hub in the Cosmos ecosystem.