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Mars Protocol Docs

Welcome to Mars Protocol

A next-generation DeFi leverage platform designed to maximize capital efficiency through its innovative Credit Account system.

The Mars Protocol empowers users with sophisticated trading tools and yield opportunities while maintaining a balanced ecosystem for both risk-takers and risk-reducers.

What is Mars Protocol?

Mars Protocol is a Gen3 DeFi leverage protocol that introduces Credit Accounts - an all-in-one position management primitive enabling leveraged trading across a wide array of strategies and assets.

Whether you're a high-leverage trader or a yield-seeking investor, Mars Protocol provides the infrastructure to meet your goals.

Core Concepts

Credit Accounts

The backbone of Mars Protocol. Credit Accounts allow users to:

Trade with leverage across on-chain and off-chain assets
Use any supported asset as collateral
Combine multiple positions in a single margin account
Hold and trade any on-chain asset

Versatile Trading Options

With Credit Accounts, users can access a wide range of strategies:

Spot Trading
Margin Trading
Lending & Borrowing
Leveraged Yield Farming

Cross-Collateralization & Risk Management

Cross-Collateralization: Any asset in your Credit Account can act as collateral
Cross-Margined Perps: Perpetuals are seamlessly integrated into the Credit Account, enabling unified risk across positions

Who Is Mars Protocol For?

Mars Protocol serves two major user groups, balancing their needs in one unified marketplace:

Speculators (Risk Takers)

Leverage power users
Seeking advanced trading instruments
Benefit from fee reductions and optimized UX

Investors (Risk Reducers)

Yield-seekers focused on capital preservation
Use Mars Protocol for risk-managed, passive yield strategies
Enjoy improved risk-adjusted returns

Why Mars Protocol?

Mars Protocol is designed to power a robust and dynamic DeFi ecosystem by:

Supporting both aggressive traders and conservative investors
Leveraging smart risk architecture via Credit Accounts
Innovating in cross-margining and collateral flexibility

Explore Mars Protocol

Whether you're here to trade, earn, build, or govern - we have all informations here for you. Dive deeper into the ecosystem:

Getting Started

Begin your journey with an overview of the protocol and how to get up and running:

Core Features

– The heart of Mars Protocol
– Trade Perps with cross-margining
– Flexible trading with leverage
– Capital-efficient lending markets

Risk & Governance

– Learn how risk is measured and mitigated
– Shape the protocol’s future

For Developers

– Technical deep dive into how Mars works under the hood

Ready to explore the cosmos of DeFi leverage? Mars Protocol is your gateway to capital-efficient strategies, active governance, and powerful financial tools — all in one unified system.

Getting Started

To begin your journey with Mars Protocol, you'll need to create and fund your account with USDC or other supported assets. If you're coming from an EVM-compatible chain, USDC is the simplest and fastest option. You can transfer it from a centralized exchange (CEX) like Coinbase or any blockchain that supports native USDC. For a step-by-step guide on how to get started, check out these helpful tutorials:

How to set up a Wallet Connect your wallet Using a Credit Account

These tutorials will guide you through the process of setting up your wallet, acquiring USDC, and creating your Credit Account at Mars Protocol.

Connect your wallet

Connect your wallet to the Mars Protocol

Connecting to Mars Protocol

Follow these steps to connect your wallet to the Mars Protocol app.

1. Visit the App & Click “Connect Wallet”

Open your browser and go to:
In the top-right corner, click Connect Wallet.

2. Agree to the Terms of Service

A modal will appear with a link to Mars Protocol’s Terms of Service.
After you read through them, click Agree & continue.

3. Select & Approve Your Wallet

Choose your wallet from the list (e.g., Keplr Wallet, Leap Wallet, etc.).
Your wallet extension will open, showing a transaction to approve the connection on the current chain (Osmosis or Neutron).
Review and click Approve in your wallet popup.

4. Proceed to Create a Credit Account

You’ve successfully connected your wallet! Next, head over to the page to begin depositing and managing assets.

Perpetual Futures (Perps)

Mars Protocol offers oracle-based perpetual futures trading, seamlessly integrated into its Credit Account system.

This architecture enables cross-margined and cross-collateralized leveraged trading using USDC as the settlement asset.

Unlike traditional orderbook-based systems, Mars executes perp trades at real-time oracle prices, ensuring deep liquidity access and deterministic execution - making it especially suitable for capital-efficient DeFi trading.

Key Mechanics

Funding Rate Mechanism

The funding rate mechanism is a core component of perpetual futures markets that ensures long-term market stability by balancing supply and demand between long and short positions.

Velocity-Based Funding Rate Mechanism

The funding rate mechanism serves as a critical balancing tool designed to maintain market equilibrium by incentivizing traders to take positions that reduce market skew. Unlike traditional static funding models, this system employs a dynamic velocity-based approach that adjusts funding rates based on the persistence and magnitude of directional imbalances in open interest.

How It Works

The funding rate evolves continuously according to a velocity model where the rate of change is proportional to the current market skew. The daily funding rate is calculated using the formula:

where the proportional skew represents the current market imbalance relative to the skew scale parameter, clapmed between -1 and 1. The maxFundingVelocity parameter determines how quickly funding rates respond to persistent skew conditions.

The funding rate is subject to a maximum cap of 96% per day (4% per hour) to prevent extreme scenarios while maintaining effectiveness.

Key Properties

This mechanism exhibits three important characteristics that promote market stability:

The funding rate can be either positive or negative. When positive, long position holders pay funding to short position holders. When negative, short position holders pay funding to long position holders. Importantly, the relationship between skew direction and funding rate is not instantaneous - a positive skew (more longs than shorts) does not immediately result in a positive funding rate, and vice versa. This is because the model adjusts funding rate velocity rather than the rate itself. For example, if the market initially had negative skew and negative funding rates, then shifts to positive skew, the funding rate velocity becomes positive but the actual funding rate may remain negative until sufficient time passes for it to reverse direction.
Linear Growth with Persistent Skew: When market imbalance remains constant over time, the funding rate increases linearly, creating mounting pressure for rebalancing trades.
Quadratic Response to Growing Imbalances: If the skew itself grows linearly, the funding rate accelerates quadratically, providing exponentially stronger incentives to restore balance.

Funding Index Calculation

The system maintains a cumulative funding sequence that tracks the accumulated (USDC-denominated) funding per unit of the underlying asset. This index is updated after each skew-modification event using the recurrent formula:

where the funding entrance represents the funding accrual for the period and is calculated as:

This formula uses the average of the current and previous funding rates, multiplied by the time elapsed since the last event, and adjusted for the relative price between the underlying asset and USDC. The funding index effectively captures the cumulative funding obligation per unit of asset over time.

Funding Accrual for Positions

Individual positions accrue funding based on their entry point in the funding sequence and their position size. When a trader opens or modifies a position, the system records the current funding index as their reference point. The unrealized funding payment for any position is then calculated as:

Examples of Funding Accrual

Consider an ETH perpetual market where the funding rate has been positive (favoring shorts) due to long skew:

Long Position Example: Alice opens a 10 ETH long position when . After 24 hours, the funding index has decreased to due to positive funding rates. Alice's funding payment is: USDC, meaning she owes 0.2 USDC in funding fees to short holders.

Short Position Example: Bob opens a 5 ETH short position () at the same time as Alice when . After 24 hours with , Bob's funding payment is: USDC, meaning he receives 0.1 USDC in funding payments from long holders.

Price Impact

Price impact mechanism simulates an order book by adding a slippage percentage to each order that is proportional to the skew and position size.

Market Impact Mechanism

The market impact model adjusts execution prices based on the current market skew and the size of the incoming order. In this approach traders pay premiums when expanding market imbalance and receive discounts when helping to balance it. The system ensures that larger directional positions face progressively higher costs, naturally limiting extreme skew accumulation.

Vault Solvency Protection

Vault Collateralization Ratio

The vault collateralization ratio (CR) is a critical solvency metric that measures the vault's ability to cover trader profits and maintain system stability. When this ratio falls below safe thresholds, an automated deleveraging mechanism activates to protect liquidity providers and preserve the protocol's financial integrity by systematically reducing the most profitable positions.

CR represents the relationship between the vault's available funds and its potential obligations to profitable traders. This ratio provides real-time insight into the vault's financial health and determines when protective measures must be activated.

where:

Liquidations

Account liquidation automatically closes undercollateralized positions and sells collateral to protect the system from bad debt while incentivizing liquidators to maintain market stability.

Account liquidation is the protocol's final safety mechanism that automatically closes positions and sells collateral when a trader's account becomes undercollateralized. This process protects the system from bad debt while providing liquidators with economic incentives to maintain market stability and ensure all participants can meet their obligations.

Liquidation Trigger

Liquidation occurs when an account's health factor falls below 1.0, indicating that the account's risk-weighted assets are insufficient to cover its obligations. The liquidation process ensures that positions are closed before they can generate losses that exceed the available collateral.

Managed Vaults

Managed Vaults on Mars Protocol are a powerful tool enabling the decentralized deployment of trading strategies via community-managed Credit Accounts.

These vaults allow experienced traders or strategy designers to operate funds on behalf of depositors—while adhering to strict security and operational constraints.

Each Managed Vault is built on a Credit Account, giving the manager access to leverage and trading capabilities without ever being able to directly deposit or withdraw assets, ensuring robust separation of powers and minimizing risk.

Key Features

Managed Vaults are designed to combine capital efficiency, decentralized strategy deployment, and user safety

Creating a Vault

Managed Vaults on Mars Protocol enable users to deploy trading strategies on behalf of depositors.

As a vault manager, you can execute trades using your vault’s account, but you cannot withdraw or transfer deposited assets directly. In return for managing the strategy, you earn a performance fee — a percentage of the vault's profit, that is claimable monthly.

This guide walks you through the steps to create and manage a Vault using the Mars App interface. You’ll learn how to:

Set up your vault’s parameters (title, fee, lockup period, etc.)
Optionally seed your vault with an initial deposit

Managing a Vault

After successfully creating your Vault, you’ll be redirected to its management dashboard.

This is your control center for monitoring performance, managing positions, and preparing for withdrawals.

You can return to this page anytime via the vault page, your portfolio, or by selecting the vault from the Credit Account dropdown menu.

This screen provides a live overview of your vault’s performance, withdrawal status, and available management actions.

Risk Methodology

Every new protocol integration or asset listing on Mars Protocol introduces unique opportunities - and unique risks.

To safeguard the system and user funds, Mars applies a rigorous, data-driven risk assessment framework developed by Mars Protocol Foundation and executed by the .

This framework is designed to balance capital efficiency with robust risk mitigation, using both traditional finance tools and DeFi-native insights.

Risk Framework Overview

The is a structured process used to evaluate:

Asset Listing

Each asset—whether a standard token, an LP token, or part of a new protocol integration—must undergo careful evaluation before being added to Mars Protocol.

This process ensures that only liquid, well-governed, and secure assets are supported for lending, borrowing, or use as collateral.

Evaluation Criteria

1. Technical and Centralization Risks

Security of underlying smart contracts
Protocol governance and upgradeability
Oracle pricing infrastructure
Bridging mechanisms (if applicable)

2. Asset Type Considerations

Mars applies tailored rules depending on asset class:

• Single Tokens

Examples: dNTRN, USDC, TIA
Assessed for price stability, market depth, and liquidity

• LP Tokens

Examples: NTRN-USDC LP, dTIA-USDC LP
Evaluated for impermanent loss exposure, dual-asset correlation, and DEX mechanics

LP tokens may have lower LTVs due to IL risk and more complex price dynamics.

Impermanent Loss & LP Tokens

Because LP tokens are subject to impermanent loss (IL)—especially during volatile market movements - the Mars framework may impose:

Lower maximum LTVs
Higher collateral thresholds for liquidation
Stricter caps on borrowable amounts

Final Approval

After both evaluation phases, final parameters are defined, including:

Loan-to-Value (LTV) Ratio
Borrow and Deposit Caps
Liquidation Thresholds
Supported Use Cases (collateral, borrowing, lending)

All asset listings are governed by the , ensuring decentralized, community-led risk management aligned with Mars Protocol's mission of secure, composable DeFi infrastructure.

Perps Risk Framework

The Perps Risk Framework is employed by Mars protocol for estimating risk parameters in perps markets.

The primary goal is to ensure sufficient margin and safeguards against extreme losses, price manipulation, and excessive market imbalances.

Key Risk Parameters

Margin Requirements: Maximum Leverage, Maximum LTV, Liquidation LTV are determined using the extreme-loss approach and CVaR risk metric based on historical price data. Leverage caps are applied according to asset quality categories.
Market Impact Model Parameter: SkewScale is calculated based on global market depth to ensure attractive trading when the market is balanced.
Open Interest Limits: Maximum Open Interest (MaxOI) and Maximum Skew are determined through multiple approaches: Extreme Price Change, Manipulation Scenario, and Expert Caps, with consideration for vault TVL.
Funding Rate Model Parameters: MaxFundingVelocity is calculated to incentivize traders to close positions when the skew is high and prevent extreme price changes from generating profits beyond what funding payments would offset.
Trading Fees: Maker and taker fees are established based on competitor analysis.

Methodology Highlights

Calculations are primarily based on historical price data, global market depth, and vault TVL.
Conservative assumptions, such as static skew and worst-case scenarios, are often used in calculations.
Risk parameters are typically updated every three months but can be urgently updated based on risk alerts, such as substantial TVL decreases or withdrawals.
Special cases are considered for new assets with limited data history.

Other Risk Management Measures

Dynamic Risk Alerts and Monitoring Systems for key parameters.
Lockdown period for vault LPs.
Autodeleverage mechanism for MaxOI control.

The framework aims to balance risk management and capital efficiency, ensuring the long-term sustainability of Mars protocol's perp markets.

All risk parameters are calculated off-chain and approved through the proposals for Risk DAO.

Mitigating Risks of Static Parameters

This section outlines the key risks arising from static risk parameters and the comprehensive measures implemented to manage these risks and maintain vault safety.

Risk Context

The key risk parameters (MaxOI, MaxSkew, MaxFundingVelocity) are all based on the vault TVL. Because these parameters are determined through Risk DAO proposals and remain static, a significant model risk exists: they can become overestimated if the vault TVL decreases substantially. Overestimation implies that potential losses arising from these parameters could exceed the desired risk tolerance of the vault.

The vault TVL can decrease over time because of two factors:

MARS Token

MARS is the governance token of the Mars Protocol. It is used to vote on community and contributor proposals. The main way to acquire MARS is via Astroport, a decentralized exchange on Neutron.

Tokenomics

Initial Supply

Total Supply

After burns and migrations.

You can get the total supply of MARS from API.

Burn address on Neutron:

Circulating Supply

You can get the circulating supply of MARS from API.

Token Utility

Governance participation through staking
Deflationary mechanism through buy & burn
Protocol revenue distribution:
- Safety fund

Buy $MARS

You can buy MARS on or via the .

Rewards Collector

The Rewards Collector Contract provides all the needed methods to withdraw generated fees and revenue from the Mars Protocol. It also handles swapping the collected revenue/fees to a specified asset.

Deployments

Neutron: neutron1h4l6rvylzcuxwdw3gzkkdzfjdxf4mv2ypfdgvnvag0dtz6x07gps6fl2vm

Osmosis: osmo1urvqe5mw00ws25yqdd4c4hlh8kdyf567mpcml7cdve9w08z0ydcqvsrgdy

Types

The types of the Rewards Collector Contract can be found .

Queries

config

Returns the Contracts configuration.

Methods

The rewards collector contract is operated by a bot used by the Mars Protocol contributors. There is no need for third party contributors to run or execute the methods of the rewards collector. That's why they are not part of the documentation.

Zapper

The Zapper contract serves as a wrapper to facilitate the provision and withdrawal of liquidity for the Mars Protocols Farm feature. It also handles estimations based on the data provided.

Deployments

Neutron:

Osmosis:

Legal

Legal Documents of the Mars Protocol

Mars Fragments Rewards Campaign

Earn Mars Fragments for deposits in eligible markets and track your share of the 45M MARS rewards.

The Mars Fragments Rewards Campaign is a long-term incentive program designed to reward aligned users who deepen liquidity across Mars Protocol and its partner products. Fragments track your contribution to the ecosystem, and at the end of the campaign, they convert into real MARS token rewards.

This page explains how the campaign works, how Fragments are earned, which markets qualify, and how rewards will be claimed.

What Are Mars Fragments?

Mars Fragments are an on-chain points unit that represents a user’s share of activity across Mars-aligned products.

You earn Fragments by depositing assets into eligible markets.
The longer you stay deposited, the more you earn.
When the campaign ends, your Fragments convert into MARS tokens.

Fragments are not a separate token. They simply track user participation and determine how the 45,000,000 MARS reward pool is distributed.

This system is designed for alignment: no gimmicks, no quests, just rewards for real liquidity and long-term engagement.

Campaign Overview

How Mars Fragments Are Earned

Snapshot Mechanics

Beginning August 27th, 2025, the Mars Fragments system takes two snapshots per day of all balances in eligible markets.

Each snapshot credits:

0.5 Mars Fragments per 1 USD deposited → totaling 1 Fragment per USD per day

Fragments accumulate continuously and are stored on-chain.

Reward Calculation

At the end of the campaign:

There are:

no lockups,
no vesting,
no restrictions on selling after claiming.

Rewards reflect your share of all Fragments earned across all participants.

Eligible Markets (Phase 1)

The campaign currently covers BTCFI markets inside Amber, the first integrated ecosystem partner and Mars.

All deposits in these BTC markets automatically qualify:

No sign-up
No transaction required
No manual tracking

Phase 1 Markets Include:

Amber BTC lending markets
Amber looping markets
Amber BTC-based structured strategies
Mars wBTC market (Eureka)

Note: Eligibility expands as new collateral types and markets come online. Additional Mars-native markets (perps, HLS, credit accounts) will join in subsequent phases. See Next Phases below.

Dashboard & Leaderboard

A dedicated Mars Fragments dashboard, available at — allows each user to:

View total Mars Fragments accumulated
See estimated MARS rewards
Track ranking on the global leaderboard
Monitor campaign progress in real time

Next Phases: Mars Protocol Markets

After BTC Phase 1, Mars Fragments rewards will expand across native Mars Protocol markets, including:

HLS strategies
Perpetual futures
Cross-collateral credit accounts
Additional BTC & non-BTC markets

The next expansion begins once maxBTC is fully accepted as collateral on Mars Protocol, enabling unified incentives across:

Mars
Amber
The broader Neutron BTCfi ecosystem

This creates a cohesive incentives layer across all Mars-aligned products.

Claiming Your Rewards

After the campaign concludes on September 1st, 2026, a dedicated claim portal will open no later than October 1st, 2026.

Through the claim portal, users can:

View total Fragments earned
See final MARS reward allocation
Claim rewards directly to their wallet

All rewards are immediately unlocked, transferable, and liquid.

Why Mars Fragments Matter

Mars Fragments are designed to build long-term alignment by:

Rewarding real liquidity over speculation
Deepening BTC liquidity across Mars & partner ecosystems
Connecting Amber → Mars → Neutron products under one incentives layer
Strengthening MARS as a utility, governance, and rewards token

This campaign marks the next chapter of community-driven growth for Mars.

How to Participate

There is no registration process.

Deposit into any eligible BTC market on Mars or Amber
Hold your position
Earn Mars Fragments automatically every day

As new markets are added, participation opportunities expand — and your early alignment is rewarded proportionally.

Privacy Policy

Mars Protocol's Privacy Policy

Mars Protocol Foundation Ltd and its affiliates (hereinafter, “Mars”, “we”, “us” or “our”) are committed to protecting and respecting your privacy. This privacy policy together with our Terms of Service governs our collection, processing and use of your personal data. By accessing the website under the main domain https://marsprotocol.io/ (“Site”), you are confirming to know the contents of the privacy policy and consenting to the information collection and specific purposes described in this privacy policy.

1. Which are the relevant definitions used within the privacy policy?

For the purposes of the present privacy policy:

“personal data” means any information relating to an identified or identifiable natural person (“data subject”); an identifiable natural person is one who can be identified, directly or indirectly, in particular by reference to an identifier such as a name, an identification number, location data, an online identifier or to one or more factors specific to the physical, physiological, genetic, mental, economic, cultural or social identity of that natural person;

“processing” means any operation or set of operations which is performed on personal data or on sets of personal data, whether or not by automated means, such as collection, recording, organization, structuring, storage, adaptation or alteration, retrieval, consultation, use, disclosure by transmission, dissemination or otherwise making available, alignment or combination, restriction, erasure or destruction;

“controller” means the natural or legal person, public authority, agency or other body which, alone or jointly with others, determines the purposes and means of the processing of personal data; where the purposes and means of such processing are determined by Union or Member State law, the controller or the specific criteria for its nomination may be provided for by Union or Member State law;

“processor” means a natural or legal person, public authority, agency or other body which processes personal data on behalf of the controller;

“consent” of the data subject means any freely given, specific, informed and unambiguous indication of the data subject's wishes by which he or she, by a statement or by a clear affirmative action, signifies agreement to the processing of personal data relating to him or her.

2. Who is the person determining the purposes and means of the processing?

The legal person that determines the purposes and means of the processing of personal data is Mars Protocol Foundation Ltd, with principal office in the British Virgin Islands, email

3. Why do we process your data?

We collect, process, and use personal data on our Site in order to offer you better products and services, best adapt our business processes to the users’ needs, and steer you to the most suitable product information and online applications.

In particular, data is processed in order to:

provide our services efficiently and effectively;
develop, enhance, market and deliver products and services to you;
find bugs;
understand your needs and your eligibility for products and services;

Moreover, we may directly or indirectly collect and temporarily store personally identifiable information for operational purposes, including for the purpose of identifying blockchain addresses or IP addresses that may indicate use of the Site from prohibited jurisdictions or by sanctioned persons or other prohibited uses.

4. Which personal data do we process?

When using the Site, we usually only collect the personal data that your browser transmits to our server. When you view our Site, we collect the following data:

IP address;
Browser type (e.g. Google Chrome, Firefox);
Device resolution;
Type of device;

In order to ameliorate your user experience, once you access the Site, we use local storage data to define the displayed language, identify your wallet, enable or disable animations and activate or deactivate tutorials.

5. Use of cookies

Cookies are small text files that are sent to your computer to ensure the technical functionality of the website. Mars uses cookies in some areas of this Site to make it easier for you to use the pages and to make them more personalized.

Where required by te law, we will use cookies only if you have given your consent.

To get more information please visit our cookie policy.

6. Retention of Personal Data

We will hold your personal data only for as long as it is necessary for us to do so, having regard to the purposes described in this privacy policy and our own legal and regulatory requirements.

Please be aware that public blockchains provide transparency into transactions and Mars is not responsible for preventing or managing information broadcasted on a public blockchain.

7. Security, Protection and Use of Personal Data

Mars constantly implements appropriate technical and organizational measures to ensure a level of security appropriate to the risk, including:

the pseudonymization and encryption of Personal Data;
the ability to ensure the ongoing confidentiality, integrity, availability and resilience of processing systems and services;
the ability to restore the availability and access to personal data in a timely manner in the event of a physical or technical incident;
a process for regularly testing, assessing and evaluating the effectiveness of technical and organizational measures for ensuring the security of the processing.

The security measures in place will, from time to time, be reviewed in line with legal and technical developments.

8. Recipients of Personal Data

We may make available the personal data that you provide to us to our affiliates and related entities, agents, representatives, service providers and contractors for the purposes outlined in this privacy policy. Any information shared with such service providers is subject to the terms of this privacy policy. All service providers that we engage with are restricted to only utilizing the information according to our instructions.

We also reserve the right to disclose personal data that Mars believes, in good faith, is appropriate or necessary to enforce our Terms of Service [link], take precautions against liability or harm, to investigate and respond to third- party claims or allegations, to respond to a court order or official requests, to protect security or integrity of Mars and to protect the rights, property or safety of Mars, our users or others.

9. Data Subjects’ Rights

The user has the right to obtain confirmation as to whether or not personal data concerning him or her are being processed, and, where that is the case, access to the personal data and all the relevant information.

With respect to other categories of rights that might be exercised depending on the place where you are located, please consider Section 14 below.

10. Users Under Age

According to the Site’s Terms of Service users must be at least eighteen years of age, of sound mental capacity and have all technical knowledge necessary or advisable to understand and evaluate the risks of the Site Mars does not knowingly collect or store any personal information about users under 16. If you believe such information has been inadvertently processed, we will take necessary steps to remove such information from our database.

The Site uses social plugins from the social networking sites. If you access the Site using such a plugin, your browser will contact the server of the underlying social networking site, load the visual presentation of the plugin, and present it to you.

While this is happening, the social networking site receives information concerning your visit to our Site, as well as further data such as your IP address.

12. Updates

Our policies, content, information, promotions, disclosures, disclaimers and features may be revised, modified, updated, and/or supplemented at any time and without prior notice at the sole and absolute discretion of Mars. If we change this privacy policy, we will take steps to notify all users by a notice on our Site and will publish the amended privacy policy on the Site.

13. Contact details

If you have any questions, comments, or concerns regarding our privacy policy and/or practices, please contact us at

14. Additional information for users located in the European Economic Area and in the United Kingdom

A. Transparency

The privacy policy informs you about the processing of personal data in accordance with articles 12, 13 and 14 EU Regulation 2016/679 on the protection of natural persons with regard to the processing of Personal Data and on the free movement of such data and repealing Directive 95/46/EC (“GDPR”).

B. Lawful Basis for the Processing of Personal Data

The GDPR requires a “lawful basis” for processing personal data. In principle, our lawful basis is established by Art. 6(1)(b) GDPR as the processing is necessary for accessing the services of the Site. Moreover, pursuant to Art. 6(1)(f), the processing is necessary for the purposes of the legitimate interests pursued by the controller or by a third party, in matters related to crimes and legal compliance and in order to ameliorate the efficiency and the user experience of the Site. Where you have given your specific consent, according to Art. 6(1)(a) GDPR, we may also use your data for specific purposes that will be outlined from time to time. This will especially happen in case of 1 to 1 interviews and testings conducted with users.

C. Data Subjects’ Rights

According to the GDPR, the user has also the right to obtain from the controller without undue delay the rectification of inaccurate personal data concerning him or her (Art. 16 GDPR); the right to obtain the erasure of personal data concerning him or her without undue delay in one of the situations outlined in Art. 17 GDPR; the right to obtain from the controller restriction of processing in accordance with Art. 18 GDPR; the right to data portability in accordance with Art. 20 GDPR.

The user has further the right to object, on grounds relating to his or her particular situation, at any time to processing of personal data concerning him or her which is necessary for the purposes of the legitimate interests pursued by the controller or by a third party (Art. 21 GDPR).

Please consider that data committed to blockchains cannot be altered or eliminated. If you want to know more about the potential application of GDPR provisions to public blockchains and distributed ledgers please consult the study commissioned by the European Parliament.

In the event that you wish to exercise any of your above rights, please contact

Mars FUD Bible

The Mars Protocol FUD Bible aims to be a compilation of FUD (fear, uncertainty and doubt), disclaimers, disclosures, and other risk-oriented information regarding the Mars Protocol Ecosystem.

It is intended to disclaim any legal obligations of Mars Ecosystem participants to one another and third parties and to serve as a guide to a range of potential risks, uncertainties, and adverse/negative facts that may be associated with Mars Protocol or its use or results of operation. It is highly recommended that you carefully study the Bible, go to church and say your prayers before directly or indirectly using Mars Protocol or $MARS or engaging in any other activities directly or indirectly related to the Mars Ecosystem.

Despite the Bible’s goals of serving as the primary resource for Mars Ecosystem FUD, it might not be a comprehensive account of all relevant risks, uncertainties, adverse/negative facts and disclaimers. DYOR, caveat emptor, etc. and so forth and so on.

Beyond the Bible, you should also be aware of and consider reviewing the following sources of information relevant to the Mars Ecosystem:

the Mars Protocol software code
all relevant legal, technical and educational content pertaining to relevant third-party ecosystems, including those relating to Mars Outposts such as Osmosis and Neutron

Technology Risks

No Warranties Etc.

Mars Protocol and all other relevant technologies are being provided on an as-is basis, without representation, warranty, insurance or indemnity, and that all participation is solely at your own risk.

Irreversibility of Transactions and Lack of Remedies and Insurance for Damages.

Blockchain transactions are, under normal conditions, irreversible. Any tokens you deposit into Mars-related smart contracts are subject to potential risk of permanent disablement, impairment, loss or forfeiture in the event of any exploits, bugs or malfunctions of the relevant smart contracts or the underlying blockchain itself, and no remedy will be available from any person due to any damages you may suffer in connection with your participation in the Mars smart contract system or use of any of the relevant technologies.

Experimental Technology; Technical Risks; Independent Due Diligence Required.

The technologies and assets involved in the Mars smart contract system are highly experimental and risky, have uncertain and potentially volatile value, and should be directly evaluated by experts in blockchain technologies before use. Use them solely at your own risk. You must not rely on any articles, summaries or published code audits as an accurate description or evaluation of the Mars smart contracts, or for purposes of making any financial or other decision. Instead, you must only participate in the Mars smart contract system after thoroughly reviewing and understanding the code of the relevant smart contracts in your own independent due diligence process. Multisignature Controls Over Mars Smart Contract System Certain elements of Mars technologies can be modified or controlled by a cryptographic multisignature smart contract stored on their respective blockchains (the “Multisig”). The Multisig, in turn, is administered by natural persons who each hold a private key, a subset of which may (by signing their respective private keys to the same transaction and broadcasting that transaction to blockchain validators) instruct validators to perform Multisig operations. It is possible for the Multisig key holders, through the Multisig, to change certain parameters of the Mars smart contracts or other Mars-related technologies. This discretion of the Multisig key holders constitutes a material risk, and could enable your tokens to be adversely impacted, lost, damaged, used in unexpected ways, subjected to unexpected risks, or misappropriated. Additionally, the Multisig may be able to arbitrarily change smart contract code related to Outposts on certain other blockchains, which could enable tokens on those blockchains to be misappropriated if at least three of the Multisig key holders collude.

Mars Multisig Specifics Mars-on-Neutron Devs Multisig Owner: Mars Protocol Foundation Key Holders: Five Mars Protocol Foundation Contributors Signature Scheme: 3-of-5 Blockchain network: Neutron Addresses: neutron1ltzuv25ltw9mkwuvvmt7e54a6ene283hfj7l0c Powers: Has various powers relating to the Mars Outpost on Osmosis (Red Bank, Credit Manager/Rovers). Can whitelist/initialize Red Bank assets, C2C contracts, Vaults, etc. (intended to follow Martian Council votes). Can upgrade/migrate all smart contracts to new smart contract code (intended to follow Martian Council votes or be used in security emergencies Mars-on-Osmosis Devs Multisig Owner: Mars Protocol Foundation Key Holders: Five Mars Protocol Foundation Contributors Signature Scheme: 3-of-5 Blockchain network: Osmosis Address: osmo14w4x949nwcrqgfe53pxs3k7x53p0gvlrq34l5n Powers: Has various powers relating to the Mars Outpost on Osmosis (Red Bank, Credit Manager/Rovers). can whitelist/initialize Red Bank assets, C2C contracts, Vaults, etc. (intended to follow Martian Council votes). Can upgrade/migrate all smart contracts to new smart contract code (intended to follow Martian Council votes or be used in security emergencies)

Financial Risks

Risks of Token Deposits and Locking.

When you deposit any tokens into Mars-related smart contracts on an Outpost, you are committing such tokens to the sole and absolute control of the applicable software systems until such time as you withdraw such tokens from such smart contracts. Certain deposit mechanisms may not allow for immediate withdrawal of tokens. If a lockup period or ‘un bonding’ period or other limit on withdrawals applies, you will not be able to withdraw tokens until the applicable period expires. During the time your tokens are controlled by the applicable software system, you will lose all powers over and benefits with respect to such tokens, other than the specific uses that such code allows you to make of such tokens during the deposit period, if any. You may lose financial opportunities, or the value of your tokens may decline during such deposit periods. Depending on the exact technology and functions involved, even systems that normally allow immediate withdrawals can impose withdrawal delays or have withdrawals become unavailable, whether as a result of “liquidation events,” “illiquidity events”, “insolvency events,” “hacks,” “exploits,” or otherwise—any such events may lead to partial or total financial loss of your tokens.

Risks of Red Bank Illiquidity Events and Insolvency Events.

Mars Red Banks can become illiquid or insolvent.

Tax Risks

Choosing to receive any $MARS can have adverse tax consequences and result in financial losses net of taxes, depending on your circumstances and tax jurisdiction. Engaging in liquidity mining on Outposts or staking, or participation in the Martian Council on DAO DAO may have adverse tax consequences and result in financial losses net of taxes, depending on your circumstances.

Risks of Mars Research, Development, Deployment, Maintenance, Etc.

Risks of No Promised Efforts or Resources.

The Mars Ecosystem is intended to be community-governed. After the public launch of Mars, none of the persons who created all or any part of the Mars smart contract system should be expected to have a material ongoing role in Mars research, development or promotion. Certain relevant parties may elect to undertake limited ministerial activities directly or indirectly related to Mars, such as maintaining availability of a Mars web interface, but no promise, guarantee or assurance of such ministerial efforts or any other efforts is being made, and any such efforts which do occur may be abandoned at any time, with or without advanced notice. There is no ‘Mars enterprise’, ‘Mars company’ or ‘Mars business’ and there is no capital dedicated to future Mars marketing, research, development or maintenance.

No person or entity has promised you, or assumed any obligation to you to exert or provide financial or other support for, any efforts, capital or resources in connection with the Mars Protocol. No person or entity has promised you, or assumed any obligation to you to exert or provide financial support for, any research, development, promotion, marketing, maintenance, monitoring, or improvements relating to the Mars Protocol. There is no capital primarily, exclusively, or irrevocably set aside or committed to funding any efforts, support or resources in connection with the Mars Protocol. Any past, present or future efforts on the part of any entity or person are being conducted on a voluntary and not committed basis, and are not intended as, and must not be construed or relied upon as, a promise of continuing efforts.

Risks of Decentralized Governance.

Any smart contract parameter adjustments, network client updates, Outpost approvals, Vault approvals, C2C Borrower approvals or other changes required to the Mars Protocol or any instance thereof will require approval of the Martian Council, which consists of a dispersed group of $MARS token holders that may be unable or unwilling to sufficiently coordinate to produce action.

Risks of Builder $MARS Allocations.

Persons who contributed to the research and development of Mars Protocol have received 30% of the $MARS token supply, escrowed in a smart contract lockup.

No such person has made any representation, promise, guarantee or assurance to you that any $MARS granted to any such person, or any funding or resources of any such person, will be held, used or spent for the benefit of the Mars community.

Any sale or other transfer or distribution of such $MARS tokens could occur without warning. Any such transaction would increase the circulating supply of $MARS tokens. Depending on the number of $MARS sold, transferred, or distributed, the terms of sale, transfer or distribution and the prevailing market conditions, such a sale, transfer or other distribution could have a material adverse effect on the price or value of, or demand for, $MARS tokens.

While locked in the smart contract escrow, the $MARS builder tokens will be votable within the Martian Council. Any use of such $MARS to vote in Mars governance could affect governance outcomes. It cannot be guaranteed that any such $MARS token recipients will participate in Mars governance. Any voting of $MARS builder tokens could fail to be conducted on a reasonable, good faith, diligent, or disinterested basis and may not be done in the best interests of other $MARS holders or the Mars community. Any $MARS holder could have financial interests or other interests or incentives which could outweigh their respective interests and incentives (if any) relating to Mars, and $MARS holders do not owe you fiduciary duties or other legal duties which would preclude them from following such extrinsic interests to the detriment of your interests or the interests of the Mars Ecosystem.

$MARS holders who choose to participate in governance will be required to use their own personal independent discretion and decision-making in doing so. No entity or other person will have the right to direct, manage or control how other $MARS holders exercise their voting powers.

As a result of the foregoing factors and the lack of any person or group of persons able to control and manage Mars, any discretionary decision-making related to Mars depends on the effectiveness of spontaneous group decision-making among participating $MARS holders. There may be disputes, differences of opinion, disagreements, conflicting incentives and a lack of coordination among or between any or all governance participants, and such circumstances may adversely affect governance results.

Nature of Mars Documentation, Articles, Interviews, Podcasts, Tweets, Etc.

Accounts and Who Maintains Them.

As of the date of this publication, the following are Mars-related social media accounts and discussion channels together with an indication of who maintains them:

Accounts exclusively maintained, moderated & published by Mars Protocol Foundation., a Cayman Islands company limited by shares:

Accounts with a mix of maintainers, moderators and publishers:

Informational Purposes Only; No Warranties.

All publications, articles, blogs, tweets, messages, posts, documents, statements, analyses and information relating to the Mars Ecosystem (collectively, “Mars Content”) are intended solely for general educational purposes regarding the software systems relating to the Mars Ecosystem and not as financial, legal, accounting, investment, or other advice or services. Accessing or using the Mars Content does not create any fiduciary, service or other contractual or common law relationship between you and the persons who produce or publish the Mars.

The Mars Content is not intended as and does not provide or create or constitute a part of any advice, representation, warranty, certification, guarantee, promise, offer, solicitation, undertaking, service, indemnity, insurance, partnership, joint venture, or enterprise, express or implied. The Mars Content is not and does not constitute a part of an offer or agreement to make any products or services available now or in the future, to maintain or update or improve any technologies or content, or to sell or buy or otherwise transact in any asset or enter into any transaction.

The Mars Content may be inaccurate, incomplete, out-of-date, or biased. The Mars Content may utilize incorrect data and assumptions, make incorrect predictions, or fail to account for material risks. The Mars Content was not prepared by fiduciaries, has not been assessed by independent third parties and may have been prepared by persons with undisclosed material conflicts of interest.

All use of the Mars Content and the technologies described therein is solely at your own risk. You must not rely on the Mars Content as a basis for making any financial or other decision but must instead conduct your own independent due diligence into all relevant matters or engage your own professional advisors to conduct such due diligence on your behalf.

No Governmental/Regulatory Review or Approval.

The Mars Content and the matters described in the Mars Content have not been reviewed, approved, endorsed, opined on, licensed or registered by or with any regulator or other entity (including governmental agencies, commissions, and self-regulatory organizations), and the authors of the Mars Content are not licensed to provide any legal, financial, accounting, investment, broker, dealer, or other advice or services.

Uncertain Nature of Forward-Looking Statements; No Duty to Update.

The forward-looking statements in the Mars Content are subject to numerous assumptions, risks and uncertainties, and thus the events described or predicted therein are subject to change or to fail to occur in accordance therewith. The authors of the Mars Content undertake no obligation to update, supplement or amend any statement that becomes inaccurate or incomplete after the date on which the Mars Content is first published, or to alert the public as to any such inaccuracy or incompleteness, whether such inaccuracy or incompleteness arises as a result of new information, changes in plans, unanticipated events or otherwise.

Risks of Differences Between DeFi and TradFi

Mars “Red Banks” Are Not Banks; No Regulations or Deposit Insurance Apply.

Mars “Red Banks” are smart contracts and are not actually banks; use of the term “bank” is metaphorical. Deposits into the Red Bank are not insured by or through any deposit insurance scheme applicable to banks. Consumer lending laws, deposit maintenance requirements, solvency requirements and other banking regulations do not apply to Mars Red Banks.

Metaphorical Use of Financial Terms; Lack of Legal Recourse for Funds.

When used in connection with Mars, the terms ‘debt,’ ‘lend,’ ‘borrow,’ ‘collateral,’ ‘credit,’ ‘leverage,’ ‘bank,’ ‘borrow’, ‘yield,’ ‘invest’ and other similar terms are not meant to be interpreted literally. Rather, such terms are being used to draw rough, fuzzy-logic analogies between the heavily automated and mostly deterministic operations of a decentralized-finance smart contract system, on the one hand, and the discretionary performance of traditional finance transactions by people, on the other hand.

For example, ‘debt’ is a legally enforceable promise from a debtor to a creditor to pay an interest rate and eventually repay the principal. Therefore, ‘debt’ cannot exist without legal agreements and cannot be enforced without courts of law. By contrast, with Mars, there are no legal agreements, promises of (re-)payment or courts of law, and therefore there are no debts, loans or other traditional finance transactions involved in using Mars.

Instead, Mars consists of software (including embedded game-theoretic incentives and assumptions) through which people can share their tokens with other people or smart contract systems and, under normal and expected conditions and subject to various assumptions regarding the behavioral effects of incentives, probably get their tokens back eventually, plus extra tokens, most of the time or in most cases. Unlike in traditional lending, the ‘lender’s’ financial return does not depend primarily on the creditworthiness, solvency or financial skill of the ‘borrower’ or on legal nuances such as the perfection of liens or the priority of creditor claims in a bankruptcy — it depends primarily on the incentive model assumed by the software design and how reliably the software implements that model.

Unlike a debtor, people who ‘borrow’ tokens from the Mars smart contract system are not required to, and have not promised to, pay the tokens back. Therefore, if the ‘borrowers’ never pay the tokens back, no promise has been broken, no legal agreement has been breached and the token ‘lenders’ cannot sue the ‘borrowers’ to get their tokens back. Instead, by not repaying the borrowed tokens, the token ‘borrowers’ merely demonstrate either that they lacked sufficient incentive to want to do so — for example, because their smart-contract bound ‘collateral’ was worth much less than the ‘borrowed’ tokens — or that a technical issue — such as congestion of the underlying blockchain — prevented them from doing so. Regardless, the ‘borrowers’ do not have an obligation to repay tokens when they do not want to or cannot do so, and there is no legal remedy available for damaged ‘lenders’ when insufficient incentives or technical problems result in a token shortfall.

When Mars is used to ‘lend’ tokens to a third-party smart-contract system, the situation is even less like traditional debt: The ‘borrowing’ smart contract has not posted ‘collateral’ and could malfunction or suffer a loss that results in complete or partial failure to return the ‘borrowed’ tokens to the Mars smart contract system and its token ‘lenders’. In this case, the token ‘lenders’ could suffer loss of tokens, but they will not have a legal remedy against the ‘borrowing’ smart contract or the Mars smart contract. Smart contracts are not persons, are usually not under the full control of any person or group of persons and may be impossible to repair, debug, update, pause or reverse. You should assume that a malfunctioning, exploited or underperforming smart contract which is not under the discretionary control of a single person or entity cannot be forced (in court or otherwise) to pay the ‘borrowed’ tokens back.

The Mars protocol incentivizes $MARS holders to provide a potential partial remedy to token ‘lenders’ when token ‘borrowers’ fail to pay their tokens back. The Mars Safety Fund can be used to partially or completely compensate Mars token ‘lenders’ who suffer shortfalls when token ‘borrowers’ fail to repay tokens or the value of ‘borrowers’’ liquidated collateral is too low. But, remember: the Mars Safety Fund, like the Mars credit protocol, is merely a smart contract, not a person or insurance company — if the Mars Safety Fund fails to provide $MARS to the damaged token ‘lenders’, or if $MARS have insufficient monetary value to compensate for such damages, there has been no breach of a legal agreement and the damaged token ‘lenders’ will not have a legal remedy.

Any ‘rate,’ ‘APR,’ ‘APY,’ ‘yield,’ ‘interest rate,’ ‘ROI’ or other form of return stated in connection with Mars for lending, borrowing, depositing, staking or otherwise transacting in a given token, strategy or smart contract system, (the “Rate”) is denominated in terms of a specific relevant token, not in terms of U.S. Dollars or other fiat currencies. Each Rate is a forward-looking projection based on a good faith belief of how to reasonably project results over the relevant period, but such belief is subject to numerous assumptions, risks and uncertainties (including smart contract security risks and third-party actions) which could result in a materially different (lower or higher) token-denominated ‘rate,’ ‘APR,’ ‘APY,’ ‘yield,’ ‘interest rate,’ or ‘ROI.’

Rates are not offers, promises, agreements, guarantees or undertakings on the part of any person or group of persons, but depend primarily on the results of operation of smart contracts and other autonomous or semi-autonomous systems (including third-party systems) and how third parties interact with those systems after the time of your deposit. Even if a particular projected Rate is achieved, you may still suffer a financial loss in fiat-denominated terms if the fiat-denominated value of the relevant tokens (your deposit and any tokens allocated or distributed to you pursuant to the Rate) declines during the deposit period. Projected Rates are not interest rates being paid on a debt.

Thus, the transactions you can perform by using the Mars ‘credit protocol’, although they are superficially similar to traditional financial transactions in some ways, are in fact very different. ‘DeFi’ and ‘TradFi’ each pose their own unique set of costs, benefits, risks and protection mechanisms. Please bear this fact in mind when reading about Mars, and do not use Mars without a sufficient understanding of how doing so differs from traditional financial transactions. The only way to fully understand such factors is to have a strong understanding of the relevant technical systems and the incentive design mechanisms they embody — we strongly encourage you to review Mars’s technical documentation and code before use.

No Investment or Lending; No Contract Rights; Absence of Counterparties.

Your transactions utilizing the Mars smart contract are not intended to be an investment, a capital-raising transaction for an enterprise, a sale of your tokens to any person or group of persons or a purchase of $MARS from any person or group of persons. They are also not intended to be a loan, consignment or deposit of your tokens to or with, or a service provided to you by, any person or group of persons. There is no ‘transaction counterparty’ or intermediary which has the discretionary power to reverse your transactions or recover your tokens or other assets, or which has made you a promise to return or refund any disabled, impaired, lost or forfeited assets. There is also no private or governmental insurance (on the part of the creators of the Mars smart contract system, any nation-state or any other person) available to compensate you for any such losses or other adverse circumstances relating to Mars transactions.

Lack of Governmental/Regulatory Oversight

Mars Protocol, the Red Bank, Credit Accounts, Perps and Vaults, $MARS and all related facts and circumstances have not been reviewed, approved, endorsed or registered with any regulator or other governmental entity. The creators of the Mars Protocol who operate the Mars Protocol are not licensed by any regulator or other authority to provide any legal, financial, accounting, investment or other advice or services.

Open Interest Caps

This section details how maximum open interest and maximum skew limits are determined through multiple risk assessment approaches to protect the vault from the counterparty risk.

The maximum OI is determined using an ensemble of approaches, and the minimum result is taken:

Extreme Price Change Approach: Potential losses over a 6-hour horizon, assuming maximum skew (skew=maxOI) and extreme price movement in the direction of the skew, should not exceed 30% of the vault's total value.
Manipulation Scenario Approach: In the event of oracle price manipulation with a specific amount of capital, the maximum profit an attacker could extract (if possible) should not exceed a predetermined portion of the vault.
Expert Caps: Expert-defined maximum OI caps are also applied, such as a percentage of the total market capitalization and/or total market depth.

Extreme Price Change Approach

Parameter Calibration Rationale

The primary risk addressed when evaluating maximum open interest (and maximum net open interest) is the vault's counterparty risk. This refers to the net risk assumed by the vault as the counterparty to all trades. To mitigate this risk, we conservatively limit open interest through maximum skew (MaxSkew) and maximum open interest (MaxOI).

The rationale behind calibrating MaxSkew and MaxOI is to ensure that even if a market reaches maximum skew and the price moves sharply in the direction of the skew, the potential loss to the vault remains below a predefined threshold with high probability.

Example. With a $250k vault TVL and a $10M maximum net OI for a specific market at maximum skew, a 3% price change in the skew direction could result in a $300k unrealized profit/loss ($10M * 3%). This scenario highlights a significant bankruptcy risk for the vault when the maximum OI is substantially larger than the vault TVL.

Maximum Open Interest (MaxOI) calibration is crucial due to our soft skew cap. This mechanism limits skew only when opening or increasing positions; closing or decreasing orders are always permitted. Consequently, skew could theoretically exceed the set limits, potentially reaching the MaxOI in a single direction under extreme conditions. We calibrate MaxOI assuming a worst-case scenario where the protocol acts as the sole counterparty for all positions. Once MaxOI is established, the Maximum Skew (MaxSkew) is defined as a fixed percentage (30%) of MaxOI.

Note that in addition to maximum caps, several mechanisms help maintain skew within acceptable boundaries. These include velocity-based funding rates and price market impact. Specifically, when skew reaches and remains at its maximum, or continues to increase, the funding rate rises rapidly, reducing trader profitability. Conversely, both the funding rate and price incentives for reducing skew encourage arbitrageurs to take opposing positions. Typically, this inherent arbitrage activity should regulate the skew, keeping it below the maximum threshold. However, maximum caps are in place for extraordinary scenarios.

Key Parameters

The following parameters are used in the methodology described below:

Gamma : This represents the maximum potential percentage exposure for the vault. It is the upper limit for potential losses relative to the net TVL that should not be exceeded with a probability of (1 - α). A lower gamma indicates lower exposure, but reduced capital efficiency for the vault.
Significance Level : This is the significance level used for determining the extreme price change.
Risk Horizon : This is the period over which extreme price changes are calibrated. It also represents the time horizon during which the protocol could be exposed to the maximum OI level and can be interpreted as the autodeleverage horizon.

MaxOI and MaxSkew are calculated for each market independently. This approach assumes a 0% chance that at least two markets will simultaneously experience maximum skew and extreme price changes in the direction of the skew.

The benefit of this approach is that adding a new market does not affect the risk parameters of existing markets. However, the drawback is that it disregards the risk of simultaneous extreme conditions across multiple markets. This risk increases with the number of listed markets. To mitigate this, other parameters such as the risk horizon and gamma should be chosen conservatively. A more sophisticated model could be considered in the future to account for the probabilities of multiple markets reaching maximum skew concurrently and the correlations between their price changes.

Notations

- vault TVL
- Unrealized PnL for all open positions for a certain market, can be either positive or negative
- is the vault total Debt
- vault current net TVL

Potential Loss for a Single Market

Assuming the open interest (OI) in token amounts remains constant over the period (meaning no positions are opened or closed), the unrealized profit and loss (UPnL) for a single market at time is:

where:

is the th position size (positive for longs and negative for shorts)
is the entering price for the th position
is the token-denominated market skew at time

Let's assume that all N traders entered their positions simultaneously at time using the average opening price across all positions as . Then the total unrealized PnL is:

where is the asset price return over the horizon .

This UPnL represents the vault potential loss coming from the price change for a period under the static skew assumption.

MaxOI Calculation

We consider each market to be isolated from other markets and ignore the joint probability of extreme scenarios for at least two markets. Basically, we assume that there is only one perp market.

The maximum open interest (MaxOI) is set to ensure that potential extreme losses for the vault remain below a specific percentage ($\gamma$) of the vault's net Total Value Locked (TVL) with a certain probability. This determination is based on the following conditions:

The skew is at its maximum value, $K_{max,$}$
Extreme price movements occur in the direction of the skew

Let assume the worst-case scenario when all open positions are on the one side of the market and the magnitude of the imbalance and one-sided open interest are the same:

In this scenario, the protocol is effectively the sole counterparty to all positions.

We require the following probabilistic equation to hold:

Solving this equation yields the upper bound for the maximum OI:

where is the extreme quantile of the asset return distribution.

The parameter is determined using the CVaR risk metric over the chosen horizon:

for longs:

for shorts:

To calculate the CVaR metric for each market, we employ a historical simulation method using the previous year's price data. For simplicity, we assume symmetrical price fluctuations and conservatively apply the same magnitude of change in both upward and downward directions:

Key Assumptions

Skew is at maximum for the particular market
Skew is zero for all other markets or their prices are constant during the risk horizon
The market price changes significantly in the skew direction for a particular market
The price market impact is ignored for simplicity

Input Data

Data Item

Description

Source

Period/Frequency

Processing

Numerical Example

Vault TVL = $500k
Vault Debt = $100k
Net Vault TVL
Extreme price change = 40%

Deriving from the MaxOI formula:

The potential loss associated with the MaxOI is:

This represents 30% of the vault's total net TVL:

Based on the historical returns of the underlying asset, there is a 1% probability that the maximum potential loss will surpass 30% of the vault's value within a given risk horizon.

Manipulation Scenario Approach

Parameter Calibration Rationale

To mitigate market price manipulation risk, the maximum obtainable profit for an attacker within a specific market must be capped at a defined portion of the vault.

Price Manipulation Factor

Let a user manipulate the market price: making transactions of large volume the price is shifted by (e.g. for the JELLY market the price was pumped by =~400% using 63% of total market capitalization which was around $15M).

A potential price pump/dump depends on two factors:

The manipulation capital: Higher capital used for manipulation can lead to a greater price pump or dump. We conservatively assume a large manipulation capital (as seen in the Mango attack, $20M).
The market liquidity (depth): More liquid markets require greater capital to shift the price. A precise approach would consider the depth from the specific feeds used in the Slinky price oracle for each market. This could involve using the minimum depth across all feeds, the feed with the maximum voting power, or a vote-weighted depth. However, implementing this requires knowledge of the feeds used for each market and the validators' power distribution, making it a potential future enhancement to this methodology.

Based on a simplified method utilizing global market depth data from leading exchanges and pairs and a linear market impact model, the price manipulation factor can be determined as follows:

Manipulation Scenario

Position Setup:

Attacker opens nearly balanced long and short positions (A and B)
Net exposure E(A-B) is minimal, appearing neutral
One position is well-collateralized, the other is minimally collateralized
With multiple short-long positions, a user can theoretically open positions up to the maximum OI on Mars because the skew will be kept near zero

Attack Execution:

Attacker triggers price jump on one of the exchanges (with thin liquidity)
A well-collateralized position makes substantial profit
Under-collateralized position gets liquidated, with losses exceeding its collateral (potentially a bad debt if not liquidated on time)
The vault absorbs the uncovered losses

Considering a scenario where an attacker establishes a position with a dollar value equal to the maximum open interest (maxOI) and subsequently manipulates the price upwards, the total OI in dollar terms would surpass the maxOI limit. This condition would activate the auto-deleverage mechanism, which would close the most profitable positions. However, for the sake of conservatism, this scenario is not explicitly factored into the methodology for risk parameters estimation.

MaxOI Calculation

Allow a user to open a position (or a set of positions) with the maximum possible size, equal to the maximum long or short open interest. Since price manipulation strategies are typically short-term, funding payments do not have sufficient time to accumulate and are therefore excluded from consideration. The maximum profit obtainable from price manipulation in either the long or short direction is calculated as follows:

The profit should be capped at a specific percentage of the vault's TVL (for instance, 30% or less).

The formula above yields the maximum permissible open interest for each market.

where

Key Assumptions

A linear price impact model is used
Manipulation capital is fixed and doesn't depend on the market capitalization and Slinky feed

Key Parameters

- manipulation capital
- the vault maximum percentage potential exposure

Input Data

Data Item

Description

Source

Period/Frequency

Processing

Numerical Example

Consider a JELLY market:

Market Cap = $20M
Depth (5%) = $200K
Manipulation capital=$16M (63% of market cap)

The maximum open interest permitted is:

Expert Caps

The final model's MaxOI is subject to the following expert-defined upper limits:

Quality Category

Multiplier to Global Depth

The final cap is determined as the minimum between the caps derived using Approach 1 and Approach 2 capped with the expert-based limits.

The MaxSkew is capped at 30% of MaxOI. Final parameters are rounded to a specific power of 10 depending on number' magnitude.

Protocol Risk Framework

This document describes the risk framework of the Mars Protocol, which serves two main purposes.

To qualitatively assess the riskiness of protocols and assets to be added to the platform (including the Red Bank and Mars credit accounts).
To determine the risk parameters for assets to be added to Mars. Initially, this framework will cover two types of assets: single asset tokens and LP tokens.

The proposed framework enables different assets and LP tokens to be objectively compared and assessed by standardizing how risk is measured and parameters are determined. This framework will be explored in detail in the following sections. The first section will explore the qualitative assessment process to whitelist protocols and assets to be used in the Red Bank or through Mars credit accounts. The second section will describe the quantitative process to assess the riskiness of single assets. Finally, in the last section the methodology to determine the risk parameters for single assets and LP tokens is covered.

The Mars Risk Framework is intended to be a non-binding resource to guide deliberation by Mars governance. The ultimate decision of whether to whitelist a protocol or asset rests solely in the hands of the Martian Council.

1. DeFi Protocol and Assets Whitelisting Process

The following criteria are suggested as an initial filter for whitelisting protocols and single assets within Mars. Assets or protocols that don’t meet the minimum requirements described below should not be incorporated into the protocol.

Integrating a certain protocol

Technical risk:

Metric

Minimum Requirements

Ideal Requirements

Centralization risk:

Metric

Minimum Requirements

Ideal Requirements

Note: assets and protocols controlled by unaccountable, affiliated, and/or centralized entities should not be accepted into Mars.

Enabling assets as collateral and/or for other interactions

Oracle risk:

Metric

Minimum Requirements

Ideal Requirements

Note: given the oracle's critical importance for the platform, assets without robust oracles should not be accepted into Mars.

Technical risk:

Metric

Minimum Requirements

Ideal Requirements

Centralization risk:

Metric

Minimum Requirements

Ideal Requirements

Note: for bridged assets, both the bridge itself and the token should pass the minimum requirements. For LP tokens, both the DEX and the token should pass the minimum requirements. This applies to the technical and centralization risk requirements.

2. Single Assets Scoring Methodology

For whitelisted assets, market and liquidity risks are assessed to calculate an asset’s score, which is then used as part of the process to determine the asset’s risk parameters. In this section, we will explore how that score is calculated and how it is used within the overall risk parameters methodology.

Risk Metrics

The scoring methodology evaluates assets in two broad categories: market risk and liquidity risk. Market risk is related to the volatility of the asset and extreme changes in its price, whereas liquidity risk is related to the ability to liquidate the asset. Specifically, assets are scored using the following metrics:

Daily 95% Conditional Value-at-Risk (CVaR, 365-days): an average of the “extreme” losses in the tail of the distribution of asset returns beyond the value at risk (VaR) cutoff point defined over the past 365 days.
Maximum intraday drawdown (90-day): maximum price change (from high to low) in a trading day over the last 90 days.
Median 24hr volume (365-day, logarithm): median 24hr volume over the last 365 days.

The following subsections describe the methodology used to score tokens in each of these metrics.

Input Data

The input data for the scoring methodology corresponds to the daily historical data of asset prices, trading volume, and market capitalization over the past year (365 calendar days) from the reference date. In addition, daily high-low-open-close data is used over the past 30 calendar days and +-2% depth as of the reference date. All data is sourced from Coingecko. Coingecko was used for practical reasons and this should not imply an affiliation or endorsement of the brand.

The selection of the assets for the scoring methodology is as follows:

The list of available assets is sourced from Coingecko.
The top 1,000 assets by market capitalization are selected.
All assets that do not have a trading history of at least 90 calendar days prior to the reference date are removed from the set.

Scoring Methodology

The scoring methodology consists of three steps:

A score is determined for each risk metric separately.
Aggregation is performed by using simple averaging of scores.
Lastly, the final asset’s score is used to define the asset’s quality category.

Let’s explore each step below.

Step 1. Defining a score for an individual metric

Firstly, all metrics for each asset are transformed into a score from 0 to 100 to standardize the scoring methodology and compare different assets more efficiently. For this transformation (from metric to 0-100 score), a linear scaling method (min-max normalization) is used. The normalized values represent individual metric scores assigned to each asset. The detailed procedure is the following:

Let denote the initial value of the -th metric of the -th asset, is a normalized value of ; are the minimum and the maximum values of the -th metric over all assets.

For positive metrics (i.e., those that increase with improving asset quality), the normalization is performed as follows:

whereas if a metric increase has a negative effect on the final rating the formula becomes

Using the above formulas each ith asset is described by a vector of normalized parameters

As a result of this step, the values of all metrics are brought to the same scale in such a way that all metrics positively impact the asset quality (the closer the score to 100 the better the asset quality in regards to that metric).

Step 2. Aggregation of metrics

Once scores for all metrics are calculated, they are averaged to get the asset’s final score.

Example:

Asset

Daily 95% CVaR

Maximum Intraday Drawdown

Median 24hr volume

Median 24hr market capitalization

Mean high-low percentage quoted spread

Amihud's illiquidity measure

Let asset X have the following scores:

Then the total score is:

Step 3. Binning

The range of final score values is divided into sub-ranges to provide five quality categories: “very good”; “good”; “medium”; “bad”; “very bad”. The following binning procedure is applied to define the category intervals.

The upper expectation (ceiling) for the final score is set to be 80, and the lower expectation (floor) is the 10th percentile of the distribution of score values. Assets with a final score above the ceiling are assigned a category “very good.” while those with a final score below the floor are assigned a category “very bad.”

The intervals between ceiling and floor are defined based on the equal width binning procedure. The width of each interval is:

where equals , is the number of categories. The corresponding interval boundaries are:

Each asset is assigned a quality category depending on the interval in which the value of the final score falls, according to the following table:

Quality Category

Score

Table 1. Bins for quality categories

These categories are used to define the maximum allowable LTVs within each category and risk horizons for the LTV calculation methodology (see Section 3).

The procedure for determining the final score is similar for new assets (not included in the initial data sample). Firstly, all metrics are calculated based on historical data and normalized using the minimum and maximum values previously defined from the sample (see the table 2 below). If the metric value exceeds the maximum or below the minimum, it is assumed to be equal to the maximum or minimum value, respectively. Finally, the obtained scores are averaged to get the total score.

Metric

Min value

Max value

Table 2. Min and max values used for metrics normalization

3. Risk Parameters

This section describes the approach to determine the risk parameters for whitelisted assets and LP tokens, namely Liquidation LTV, Maximum LTV, and Margin of Safety.

3.1 Definitions

Liquidation LTV is the LTV at which a position is defined as undercollateralized and the user becomes liquidatable.
Maximum LTV (≤ Liquidation LTV) is the maximum LTV allowed when the user is opening or adjusting a position.
Margin of Safety is the difference between the Liquidation LTV and Max. LTV. It’s a safety cushion to avoid users becoming liquidatable immediately after opening a position at the maximum allowed LTV.

The derivation of Liquidation LTV is described in Section 3.2. The approach to define Margin of Safety and corresponding Maximum LTV is provided in Section 3.3. Lastly, in Section 3.4 the methodology to determine these risk parameters for LP tokens is explored.

3.2 Liquidation LTV for Single Asset Tokens

Liquidation LTV is defined for each token as follows:

where

The haircut intends to capture the percentage potential loss of value of a given asset after it becomes liquidatable due to the following factors:

Market risk component – risk related to possible extreme price movements.
Liquidity risk component – the cost of liquidating a position following a liquidation event due to the impact of the liquidation on the market price.

A detailed description of the calculation approach for both components is given in the following subsections. The greater the asset's market and/or liquidity risk, the higher the corresponding haircut and the lower the LTV.

The serves to limit the LTV obtained from the historical data to ensure conservatism and depends on the token’s quality as defined in Section 2 (see Table 3 below).

Market Risk Component

The market risk component is an LTV adjustment defined such that the expected likelihood* of the price of the asset dropping more than the market risk component is 1%. Hence the market risk component is defined as the 99% conditional value-at-risk with a given risk horizon (average of the “extreme” returns in the left tail of the asset returns distribution, beyond the value at risk cutoff point):

where is defined by using the historical-simulation approach, which implies that the probability distribution and corresponding tail-risk are estimated empirically from the observed price movements (percentage asset returns) over the past 365 days from the reference date.

It’s important to highlight that this methodology only provides an estimate of extreme future price trajectories of a given asset. This estimate is based on past price performance and, as such, it should be understood as a backward-looking, fallible (though valuable) tool for predicting future prices.

The risk horizon represents the longest period required for a position to be liquidated. It is assumed to depend on the asset category (see table 3 below) and varies from 1 to 5 days. The riskier the asset, the longer the period used to calculate relative price movements and quantify corresponding tail-risk (CVaR). Usually, liquidations within DeFi happen within 1 day. However, the minimum 1-day horizon is used to ensure conservatism as the historical simulation approach is backward-looking and may not cover all potential movements of the asset price in the future.

Note: estimating the distribution quantile can be inaccurate for assets with short histories. To take this into account, we use quantiles for those pairs where we have price histories over the past 200-365 days, while for others (90-200 days history), we use the extreme move approach - maximum observed percentage returns over the available historical period.

Liquidity Risk Component

The liquidity risk adjustment is defined per asset using the -2% dollar depth aggregated over different exchanges as of the reference date. It is a cost-per-dollar-volume liquidity risk measure that is interpreted as capital in USD required to move the price by 2% down from the last traded price. The list of exchanges considered includes Uniswap, Osmosis, and top-10 exchanges according to the Coingecko ranking.

The liquidity risk component is calculated for each token as follows:

Here the multiplier\

shows how much % the price will move down subject to $1 volume.

Depth refers to the ability of the market to absorb the sale or exit of a position. A liquidator who liquidates a position of an ordinary user is not likely to impact the asset price. Selling a large block of assets though, can cause the price to fall when the asset is sold. Hence, the Swap Size is set to depend on the asset's deposit cap and is defined conservatively, assuming a medium-size transaction amount that can have a notable impact on the asset price as 1% of the deposit cap.

The risk horizon and for each token’s category are provided in the table below:

Table 3. Risk horizons and LTV caps per asset’s quality category

3.3 Maximum LTV and Margin of Safety for Single Asset Tokens

The Liquidation LTV is defined based on the with the horizon determined by the token’s quality category. The safety margin is defined as the absolute difference between the CVaR calculated at the defined horizon plus 1 day and the :

Thus, the margin of safety is defined by the relative price drop incurred in one additional day in relation to the horizon used to determine the Liquidation LTV.

The higher the price volatility of the token, the more the price can fall with an increase in the risk horizon by 1 day, and therefore the higher the safety margin and the lower the corresponding Maximum LTV will be.

The following caps are applied to the margin of safety derived from the historical data depending on the token’s quality category:

Table 4. Margin of Safety caps per token’s quality category

The minimum margin of safety is set to be 0.005.

The Maximum LTV is defined based on an absolute adjustment applied to the Liquidation LTV as follows:

3.4 Risk Parameters for LP tokens

The Liquidation LTV of LP tokens is calculated as the average of the Liquidation LTVs of the individual assets that compose the LP token, adjusted for IL risks:

where are the Liquidation LTVs of the assets that compose the LP token (assuming a 50/50 LP token). The IL Risk Adjustment is intended to capture the additional impermanent loss risks associated with holding an LP token (vs. a 50/50 portfolio of the individual assets).

The IL risk is defined as follows:

where Expected .

Assuming a 50%/50% LP token and constant product AMM, IL is calculated as follows:

where , and are simple assets’ returns calculated over the unit of time and is the pool price. Note that the above IL formula excludes trading fees and other rewards LP token holders may accrue. This is intentional and is done to calculate a worse-case IL, which ultimately generates a more conservative LTV for the LP token.

From the above formula, historical ILs for each pool are calculated by using the 10-day overlapping asset returns over the past 365 days.

Then the expected IL is estimated by using the historical simulation value-at-risk approach. Based on the empirical distribution of ILs, value-at-risk measures the loss value that will not be exceeded with a probability of 95% over a 10-day risk horizon:

The risk horizon represents the longest period needed for liquidation (the longest period over which the protocol can be exposed to the position, i.e., liquidating the LP token).

The risk horizon is set to 10-days to ensure conservatism.

Note: Estimating the distribution quantile can be inaccurate for assets with short histories. To take this into account, we use quantiles for those pairs where we have price history over the past 200-365 days, while for others (90-200 days history), we use the extreme move approach - maximum observed ILs over the available historical period.

The applied IL risk adjustment allows to capture the size of the loss (risk exposure) within the chosen risk horizon and the associated probability level (the likelihood of a loss of a given magnitude (with a 5% chance of exceeding it)). Using a historical simulation method to estimate value-at-risk captures any empirical dependencies (including non-linear ones) between the two assets in the pool.

The Margin of Safety and the Maximum LTV for LP token are defined as follows:

where are the Margins of Safety of the assets that compose the LP token.

4. Model Usage, Monitoring and Update

Approaches used in this framework to define risk parameters are primarily data-driven; hence the obtained risk parameters are expected to change in response to varying market conditions. Therefore, obtained LTVs can be revised regularly (i.e. once every six months or urgently in case of severe market stress) to avoid stale risk parameters.

When updating the model, the historical data period can also be revised to ensure that the sample covers at least one period of acute stress (e.g., May 2022).

Additionally, the sanity of the final outputs of the model should be checked by the community such that final parameter adjustments are made when considered necessary.

5. Disclaimers

Please Note: The proposed risk framework is not intended as financial advice and should not be relied upon; rather, it is being made available for educational purposes as a starting point for each person’s own independent review and analysis of risks. The risk framework could fail to account for certain risks or could fail to adequately weigh the risks that it does account for. Use at your own risk. No representation, warranty, guaranty, indemnity or assumption of risk is being provided hereby. This article is subject to and qualified by the Mars Disclaimers/Disclosures.

Appendix A. Description of risk metrics

Amihud’s illiquidity measure

The metric is calculated as follows:

where is the daily asset return at day and is the daily dollar trading volume at .

In cases where significant price changes with small trading volume exist, this ratio increases, which means that the illiquidity of the stock increases. Everything else being equal, a higher trading volume will lead to a lower Amihud illiquidity measure.

This metric is considered a proxy for market depth liquidity measure.

High-low percentage quoted spread

The metric is calculated as follows:

where is the highest daily price, is the lowest daily price, and is the mid-price. The full spread represents the cost of buying and selling the asset today. As we are only interested in the cost of selling, the cost of liquidity is only half of the spread.

This metric represents a proxy for the bid-ask spread, widely used as a market width measure.

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