Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Jose Macedo: Mars Protocol – Red Bank' Credit on Cosmos via Osmosis

Episode Date: April 28, 2023

The end of 2022 and beginning of 2023 were marked by centralised institutions failing: from CEXes to CeFi itself, contagion spread quickly in over-leveraged and opaque entities. Amidst this chaos, (crypto)people turned their hopes, once again, to DeFi. However, in lack of traditional enforcing mechanisms, not even battle-tested decentralised lending protocols could find a solution to provide under-collateralised loans, aka credit. Mars Protocol, with its unique hub & outposts architecture, aims to answer this need in the Cosmos ecosystem, by deploying on Osmosis and tapping into its deep liquidity. From manual leverage to credit and yield farming, Mars will feature a wide suite of DeFi products.We were joined by Jose Macedo, founder of Delphi Labs, to discuss the history of Delphi Digital, their learnings from incubating projects and the vision behind Mars’ ‘Red Bank’ DeFi products.Topics covered in this episode:Jose’s backgroundDelphi Digital’s historyIncubating projects on Solana and TerraLearning from TerraThe vision behind Mars ProtocolMars’ DeFi suiteDifferent risk parameters and collateralsMars’ module architecture (outposts) in the Cosmos ecosystemHow Mars Protocol differs from OsmosisMars Protocol roadmap & Mars v.2Ecosystem acceleratorEpisode links: Jose Macedo on TwitterDelphi Labs on TwitterDelphi Digital on TwitterMars Protocol on TwitterAstroport on TwitterOsmosis on TwitterThis episode is hosted by Brian Fabian Crain & Felix Lutsch. Show notes and listening options: epicenter.tv/493

This is Epicenter, Episode 493 with guest Jose Mascado. Welcome to Epicenter, the show which talks about the technologies, projects and people driving decentralization and the blockchain revolution. I'm Felix Lutch and I'm here today with Brian Crane. Today we're speaking with Jose Macedo, who is head of Delphi Labs. Delphi Labs is part of Delphi Digital, a pioneering crypto company that has three divisions, research, ventures and labs. The main focus of Delphi Labs at this point is Mars Protocol, a new DFI focused hub built leveraging

the cosmos stack. Welcome, Jose to Epicenter. Thanks very much for having me. Big fan of the show and of you guys as well. Yeah, awesome. Yeah, so glad to have you on after so many years of being back in a similar space. So as is customary on Epicenter, I guess the first question we ask generally is sort of, you know, how did you end up in crypto? So I think for you, this is a quite interesting story.

So excited to hear a bit about it. Yeah, it's a long story. I started off playing in my teens, kind of playing professional poker, which was the way that I first got into economics and game theory and stuff like that. Then I went to university, studied politics, philosophy, and economics there. Started a couple of businesses, including like very random businesses, like a cleaning company, a martial arts academy, all sorts of different stuff. And then actually someone came, like a friend of a friend came to train at my martial arts academy.

And this person who's still in crypto, but I think doesn't like to be duxed, has quite a big kill count as well in terms of getting people into crypto. But they kind of talked to me about Ethereum. And it just made sense to me pretty much instantly. Like, I had heard about Bitcoin a bunch of times before. People had even offered to settle kind of transactions back in the poker days and Bitcoin and stuff. but I just never bother to look into it. And also, it wouldn't have clicked for me, I think, the kind of just pure non-sovereign money thing.

But the world computer thesis really, really did click for me. And so pretty much, like a week later, I had put everything on hold, like all the businesses and everything, and was just kind of diving down the rabbit hole, reading everything I could on crypto and on, like, monetary history, and all sorts of stuff like that. And then, yeah, started working in the space pretty soon after just because I wanted to find more smart people

to kind of learn alongside. Started off as an analyst at a company called like Amazix back in the days. I don't know if you guys remember that. It was like a community management company from the ICO days. I was just like speaking to a bunch of founders assessing a bunch of projects. We worked with like Bankor and a bunch of other kind of cool projects. And I was writing research on my blog in my spare time and kind of connected through that with Delphi.

I had written a post on Ethereum back with Ethereum just was, just kept going down and people were saying that that uh that ethereum would never capture value that it was going to zero that was the famous tetris capital blog if you remember that where they were like short Ethereum and I just wrote a piece just basically saying why I was bullish Ethereum and value capture. It actually talked about EIP 1559 which was already being discussed in the Ethereum forums back then and yeah Delphi cited me in one of their research reports and then I went on their podcast.

started collaborating and kind of, yeah, the rest of history started Delphi Ventures, co-founded that and then co-founded Delphi Labs. So Delphi is sort of like an interesting and, you know, unusual type of organization. I'm curious if you can talk a little bit about, you know, how did Delphi get started and like, you know, what did it look like when you joined? So when I joined Delphi was a pure research company. So, and that's kind of how it started. So most of the, so the kind of co-founders on the research side come from traditional finance,

actually from equity research at Bloomberg and Deutsche Bank. And in 2018, they fell down the crypto rabbit hole and thought, you know, if we can get paid to just like learn about crypto and write about crypto, that's like the dream job. So they started that and just started writing like really good research, right? I mean, I remember at the time when I started in crypto, I started in 2017, but by the time I was really looking into this stuff, I was writing by far the best research in the space. And what I was doing was mainly consulting. Amazing. So I started off analyzing projects and then I kind of figured out that the main problem that every project had was just like token economics.

Like a lot of times the project was cool, but the token just didn't make any sense. It was just like a medium of exchange, right? In order to use this network, you need to use our token. And that was never going to capture value. And so I had kind of built a niche just focused on designing good token models. And that was going really well. And basically, I came to Delphi to help with research, but also lead the consulting side at the time. So Delphi at the time was mainly focused purely on research.

And then when I joined, we started labs and started focusing on consulting, where we did like token design, mechanism design, eventually smart contract work as well. for projects like Ave and Thorchain and Balancer and stuff like that. And pretty much at the same time, we started the Delphi Ventures, which was our fund. So that was a long story. We basically spent all of 2019 trying to raise money. We had this anchor investor that was like started off in for 20, then for 10, then for 5, then like didn't end up investing anything and had a bunch of other funny fundraising stories from 2019. I mean, I think we're pretty bad at fundraising, but it was also really hard in 2019 with the bar market and stuff.

Everyone thought crypto was dead, had a bunch of meetings like all around Europe and the world of people that were super frustrating. Like, remember having one dinner with one guy and at the end of the dinner, he was like, oh, yeah, but I'm, I'm in, but can I pay cash? And I was like, no, we can't. We can't lend to your money, sir. I'm really sorry. So, yeah, it was really frustrating. But in the end, we didn't get any external investors for ventures. And so we ended up putting in just our own money.

So we found synthetics was a project we were really bullish on. And we worked with them on the risk framework and stuff. And so we made a bit of money there. And then we found Thorchain, which we wanted to be the first investment for the fund because we thought it was just synthetics, but for a use case that had more product market fit. You know, like it was clear that people wanted to trade Bitcoin on chain, whereas synthetics, like it wasn't as clear. People wanted to trade synthetic assets.

So we wanted to invest in it, make it the first investment of the fund. And we made an OTC deal with the team. And then at the time that it was going to close, our investor pulled out and we just like put in our own money, basically levered up like credit card debt and everything. And yeah, started with with about a million dollars of our own capital, the seven of us together and kind of grew it from there. Yeah, that's really cool. And I think, you know, obviously today we're also here a lot to talk about labs, which you're ahead of. And you sort of mentioned it was created in parallel sort of for the consulting first. But then you also started basically incubating or building your own projects.

Can you talk a little bit about how that came about? For sure. And so yeah, people get confused about Delphi. So we're all equal partners in kind of the three businesses, roughly. And then we all focus on different parts. So there's the research, the ventures, and the labs and different. So seven, we all focus on kind of different parts of the business. So, yeah, lab started off, focused on consulting.

So, yeah, did some work with Ava and Thorchand stuff. And at some point, we realized that we'd gained a lot of IP and built a really good team doing consulting. And consulting tends to get, like, a bit frustrating after a while, right? Because people don't always take your ideas on, and you just feel like you want to be in there building rather than, like, kind of consulting on how to build. And also, it's just like sales cycles and Gant charts and stuff, like at a certain point, you kind of get bored of doing all that stuff. And so, yeah, we started kind of incubating our projects from scratch.

And at the time, we identified kind of Salana and Terra as the two ecosystems we were most bullish on, started building on both of those, but quickly kind of realized Solana was way earlier and more difficult to build on than Terra. This was like an early 2021. Like even getting your transactions included in a block in Salana back then was difficult. and there was a bunch of closed source libraries and stuff that made it, they made it challenging. So we ended up making the kind of fateful decision to focus most of our building efforts on Terra. And that started off really well. We launched kind of Astreport first and then Mars on Terra. Yeah, they were pretty successful while Terra was successful. Astreport had about, you know, one to two

billion in TVL. It was a top five decentralized exchange by volume within like a month of launch. Yeah, and had a pretty exciting roadmap plan. And then Mars also had about nearly a billion in TVL and was, yeah, it was just getting kind of getting started when Territ collapsed. Since then, we've been kind of obviously working with those projects to help them find a new home. Did a bunch of research on that. Ended up choosing Cosmos as a new home and, you know, wrote a big research report on that. And, yeah, Astreport is now live on a bunch of different chains on Cosmos. Mars is its own chain and then has its first outpost on osmosis.

And yeah, I guess the evolution was started off with consulting. Then we went to kind of building our and incubating our own projects. And the idea of that was always that Mars and Astroport would be kind of an example of showing people what we can do and like how successful we can be and the value we can add to projects. And then we would use that as an example to kind of attract other smart builders to come and build with us and scale it out from there. But Mars and Astrofort kind of became so successful at a certain point that it didn't make sense for us to do anything else. And now we're and also like they required a lot of our attention. But now those projects are pretty much independent.

And so we were focused back on the on the accelerator and on kind of attracting new builders to work on like all the other ideas that we think are exciting as well. Cool. Yeah. Definitely want us to talk more about the accelerator. later later. So if you got to Terra, right, so you guys were focusing on the Terra ecosystem. What are your biggest learnings from that episode? We went into Terra with our eyes, like, wide open, to be honest. So like we had been involved in ESD before and like we'd always been kind of fascinated by decentralized stable coins.

I think Maker was the first project we ever covered on the research side as well. So we kind of understood the risks and we always pointed out the risks and like wrote wrote threads about the risks and stuff. So it's hard to say that that what happened was like people call it a black swan. It definitely wasn't a black swan, right? It was it was a known risk. But I think probably one one thing I learned in general from from 2022 was just that like building wrote like in crypto. Everything that can break will break.

And so I think building robustness into your systems and building for the long term is more important and kind of like short term success. And I think you saw a lot of examples of like stuff breaking in 2020 that looked like it was super successful, right? Whether it's, whether it's Terra or FTX even, like I remember FTX at a certain point had like, even I think well into sort of 2021, they had like 100 something employees and I was like, that's not that much bigger than labs and look what they've built. Like, damn, these guys are like super smart, you know, we need to catch up, we need to work

harder and then you realize that they were like holding private keys on a Google Docs right and doing all sorts of crazy stuff like taking all sorts of shortcuts um and i think 2022 ended up revealing a lot of that that a lot of the projects that you thought were successful were taking uh shortcuts that that you couldn't see but that became obvious as soon as there was like market stressor um and and i think a lot of the times uh the projects where that happens is where the flows are sort of covered up by charismatic leaders of some sort right where you know humans were naturally attracted to kind of like charismatic leaders you want to you want to follow and I think the projects where that ended up being the biggest problem was was when

where there was that where people kind of look past the flaws of the project because they had this this charismatic leader so I think one big lesson that it reinforced was kind of the yeah don't trust verify and just be more annoyeded like kind of our GC Gabe Shapiro says like be more suspicious of a of what's going on. And I think that was probably one of my biggest learners in 2022. And it also affected how we like build, how we incubate, how we think about the space. We've always been pretty long-term oriented.

And actually like, Tara was a long-term bet when we made it. Like Tara, when we started building on it, it was nowhere near what it ended up as. Like UST supply was under a bill, well under a bill. And so like, and we felt that that wouldn't take off until there was some pressure on centralized table. which would take a while. And so just wanted to kind of build towards that. Definitely didn't expect the success it had and think, like, in hindsight, it's pretty apparent that like anchor was a mistake, keeping yield that high was a mistake.

Yeah, and it was frustrating because I think it ended up being the mistake that every other algorithm stable coin made, which is just a gross supply too quickly compared to like the base of real demand that there actually is. So, yeah, I'd say that was the, that, that's a good. was the biggest lesson. And did you like, I guess building Mars back then and now building like your own cosmos chain with it? Did you apply like these learnings?

Would you say like in practice in some sense? Like could you give an example maybe of how you? Yeah, that's a great. That's a great question. Yeah. First of all, we always focus on like five years from now or like 10 years from now when we're thinking about making these decisions. like in terms of product, in terms of protocol, like, and so one example could be when we were

looking around for where to build, like layer twos looked really exciting, but realistically, layer twos are still extremely centralized, right? You're relying on like a centralized sequencer. Most of them don't even have like fraud proofs in production of the CCKs is very far away. And so for us, that was like something that we didn't want to deal with. Like we didn't want to deal with those centralization risks and those like. potential technical, technical issues. The same thing with kind of Aptos and Sui. It was like there were exciting ecosystems, but still very early for us. And like Cosmos for us, like the kind of

Cosmos SDK stack was super battle tested, right? Even terror itself, the collapse of terror was like kind of a notch on that stacks, you know. Yeah, like it made it, it's really robust. So that was like one of the big reasons why we decided to stay on cosmos and also why we decided to kind of, or the project decided to launch our own chain because it's just like the way that gives you the most control and flexibility over over over what you're doing. And so yeah, I think that was a big thing. Also like why decided to kind of launch on osmosis because we thought that team was very long term oriented. I thought it was like again very battle tested stack. So that was an example of kind of that coming into play.

But I think in general, you can kind of see it in a bunch of like small decisions that you have to make day to day about how to do things, whether to take shortcuts or not. Like if you want to list, even listing something like ST Atom, right? You see a lot of other money markets, list that and just use the Atom Oracle price. You know, and that's like most of the time that might be fine, but there's some percentage of the time where it, uh, deep pegs in the protocol actually ends up with bad debt and sort of Mars will never will never use take shortcuts like that right it's always going to be be trying to do it the right way even if it takes longer even if it means it's not as not a

competitive not as competitive a product in the short term yeah and there's like as I said there's like loads of I think when you're that the an exercise that we did actually at labs and which is really cool was just doing the values thing like I always thought that was just like corporate you know like a very corporate thing you know because because most values are just like sound bites right like honesty or like integrity or whatever. And I think the way to do those values right is to have values that actually have like meaningful opposites, right, where there could be where like, let's say you choose,

for example, long-term oriented, some companies value like Facebook is like ship fast and break things, right, which is like in a sense the opposite of long-term oriented. Like long-term oriented might mean you actually ship slower and you don't move as fast. And so I think like having those setting up those values is really important. And for us, we're definitely more on the slower, more careful side, especially after what happened in 2022. It just kind of reinforced that. And it also means like certain projects that are out there right now. I don't really want to mention them by name, but like certain projects that are out there right now that they're like growing really fast, they definitely have like problems with their tech stack, whether it's like multi-sigs holding, you know, billions and billions of dollars or just like unstable chains.

or like that have like deep reorgs or whatever. I think those things are things that we're much more careful with right now when we think about launching somewhere. So let's talk a little bit about Mars on a high level. Like what is the vision for Mars? And how has the vision changed since the time you were building on terror versus like where it is today? The best way to describe kind of the vision for Mars in my mind.

And then obviously different people have, it's a decentralized project, so different people have, have different visions for it and different beliefs on where it should go. But for me, it's like an FTX-like experience for defy. And like that sounds even like that was the vision before FTX collapsed. And I think now it makes even more sense why you'd want that, right? Why you actually want it decentralized and not centralized. And the idea with that is just having this sub-account where you're able to have like all your defy positions, your yield farming, you're LPing, your staking, you're trading, all in one single account with a single kind of like margin threshold.

And so the way I think about it is kind of like building a sub-account for DFI, where you can do all your on-chain activity from this one account and perform like leveraged interactions with every single protocol from one account. And for me, that was the real, that was the reason that I liked and that I used FTCX over over other exchanges, right? When you use something like finance, it's like you have like your spot account and then your isolated margin account and your cross margin account and your futures account and like everything is separated out. You have to transfer from account to account. And it's like everything was built by different teams. They don't really talk to each other and it's just not a great

user experience. You can end up getting liquidated on your futures account even though you have a bunch on your spot account, right? And it's just not as capital efficient. So and I think that's Ultimately, the name of the game in Define Finance is like capital efficiency, right? You want your capital to sit somewhere where you can do the most things with it. And I think if you build that, there's a bunch of stuff that can come off it because, for example, I think stable coins actually is also a capital efficiency problem and something that can be built on top of a system like this. Because I think algorithmic designs are kind of like that,

I won't be fucking around and finding out with algorithmic designs anymore. And so I think what you have left is just like debt-based designs. And the issue with debt-based designs is like a capital problem, right? It's really hard to bootstrap enough capital to actually make a stable coin that's large enough to satisfy like the demand for a stable coin. And so what you end up seeing is they have to take on centralized collateral and they just don't grow that fast, right? And so all the successful stable coins end up being built around.

centralized exchanges because they have the most capital right like us DC was built around coin base tether was built around bitfinex back in the day and BUSD was built around binance and those are the three biggest centralized stable coins by market cap and so my kind of hypothesis is that the winning decentralized table coin will be built around the winning decentralized exchange because it's just a debt product it's like another that you can issue against your account and so I think whoever ends up building that these centralized FTCX will end up having, like being in a good position to build decentralized stable coins and a bunch of other kind of like important things.

Right. And because back in the beginning, you know, you were building on Terra, right? So it was basically like an application on the Terra chain, whereas now it's sort of like its own chain. But like, you know, this outpost concept, which I think maybe we can get into. Is that, is that how, what does, what changes that? Did you, did you also, when it was on care of, for example, did you also imagine that you would like, I don't know, try to integrate lots of assets from other chains via some sort of bridges or like, how, how did you imagine that back then? Yeah.

I think with Mars actually the plan was always to eventually be its own chain. We kind of saw that as an interesting model. And like we didn't. So like obviously there's two ways to, yeah. Well, so yeah, when it started off, it was an application on Terra. I think we always saw the appeal of being being its own chain. But it was more so that it could be anywhere because Mars is a credit protocol, right? And so ideally it should be available anywhere that there can be demand for credit.

And at the time, the most demand for credit was on, was on Terra. Terra had the most growth, the most like stable coins as well. And so it had the most demand for credit. But we definitely saw, like we were never Terra Maxis, right? We knew that there would be other ecosystems that succeeded. And so we wanted like a chance to be on there. And this sort of hub and outpost design, which actually Sunny was one of the original people who kind of described this to us made a lot of sense to us because with with credit it makes

like there's kind of two options when you when you build these app chains right the one is you put like all the assets on the on the app chain basically and make everyone move their assets over or you keep all the assets on the on the edge right on these on these outposts and like the first model is kind of like thor chain right and the second model is more like sushi where it has outputs on a bunch of different chains. And for us, for a credit protocol, the latter always made more sense because if you want to build a decentralized FTX-like experience and build that winning decentralized exchange, you kind of need synchronicity and atomicity, right?

You need things to happen fast and ideally to be on the same execution environment so that you can do things like liquidations, right, where you need to, a contract needs to observe another contract state and then call a liquidation function, this kind of thing. under that tap and synchronously and also just like trading itself it needs to be fast like already five second blocks aren't that fast and so like if you have to wait for for iBC relays and stuff it's just not really really feasible and and so yeah the the vision the cool thing about the hub and outpost model is it means mars can expand like anywhere anywhere that that the hub can send messages to which right now is a lot of places there's a like with iBC obviously it's cosmos chains although there are people working on

bridges to Ethereum and stuff as well. But you can use other bridges to send messages anywhere. Mars could have an outpost anywhere, right? And then it becomes similar to like a traditional like the metaphor we use sometimes as like the traditional business or bank, right?

Where you have the headquarters of the bank, but then they have bank branches all around the country and sometimes also in different countries, right? And that's kind of how we see Mars where you have the hub, which is like the headquarters, which does the accounting, the staking and governance and then you have all these different outposts that serve

different chains at different markets as it were with with credit yeah so you you know you mentioned this vision right of this FDX decentralized FDX like product and then you mentioned and I think it is also you know like spot trading like lending margin derivatives and yield so a lot of different stuff. Do you imagine that Mars would build all of those and where are you focusing right now? Or would it be sort of that like Mars will leverage those in different places and I don't know, have some sort of, yeah, can you can explain a little bit like yet to what extent this is all like built within Mars versus, you know, kind of assembling different pieces together?

For sure. And so this was always the, so I think. I think the answer is when I assemble different pieces together, when I integrate with stuff that already exists rather than build everything. And that was always the vision for Mars, right? In Ontario, it had this primitive called smart contract credit lines, which kind of leverage deal farming is an example of that, which is just like, you know, if you think about AVE or compound, you can only borrow less than what you put in, right, because you could do anything with the capital.

So I can never give you more than what you have as collateral because you could just run away with it, right? And there would be no incentive for you to ever pay back. With Mars, the idea is that Mars can lend to smart contracts that are performing a certain action. So, for example, margin trading or leverage deal farming, right? And then the smart. So in the case of margin trading, for instance, let's say you want to go along Adam, Mars could lend you stable coins and then buy the atom and hold the atom as collateral. and then effectively liquidate you if Adam drops below a certain, like, threshold that's specified in the smart contract.

And so that's much more similar to what a centralized exchange does, right? Where centralized exchange can give you 100x leverage on something because they hold the collateral and what they loan you and they can liquidate you, right? Whereas for a normal money market, it's difficult to do that. So the idea with Mars is just to extend that concept to any kind of smart contract or borrowing activity. Neverstaking, leveraged elp being, even NFTs, like if they have enough liquidity, could also be included into this. Basically, anything that you can do on chain where it can be, like the activity can be encoded into a smart contract and the collateral in the smart

contract has enough liquidity that Mars can reason about how to liquidate it if the, if the activity goes wrong, Mars can extend credit for it. And so it's like a very cool concept because eventually as more and more things get tokenized, you could extend it to like real world things, right? Like the mortgage is effectively just a smart contract credit line, right? As long as the house could be tokenized and put into a smart contract, then that can be included into this. And so the idea with it is not that Mars would go and build mortgages and build spot trading and market trading and everything like that, but that it would integrate with existing primitives and act as a sub-account built on top of all these different defy primitives.

There's like sort of an edge case there, which is with designs that have their own leverage built in. Because there, it's slightly different. So, for example, like a CDP, like a maker like CDP. If Mars were to integrate with something like that, then the whole point of Mars is that you have this credit account with one liquidation threshold, right? But if you integrate with something like a CDP, there's actually two liquidation thresholds. There's the CDP's liquidation threshold and then and then Mars is like credit account liquidation threshold. And so there there's sort of two different approaches on how to do it. The first one is just to do like a defy saver like thing of rebalancing.

Right. So if your CEP is is about to get liquidated, but you have extra like borrowing capacity on your credit account, it would just borrow from your credit account and add collateral to the CDP for example or pay down some of the debt of the CDP and vice. versa or Mars can build those itself and kind of integrate them into the credit account account itself and I think like one interesting case where that comes along is perps where I think like there's no no perps currently live on on Cosmos and so some March contributors are considering kind of building that out as as part of Mars so that that can be offered as part of this yeah maybe we can take it back a bit and you can

sort of, I guess we talked a lot about Mars already, but maybe it helps to sort of break it down into like the components that Mars has for the listeners. Yeah, for sure. So I guess the best way to think about it is Mars has lenders on one side, right, which are lending like similar to how you would lend on AVE or compound or a traditional money market. And then on the other side, you have borrowers, which. on oven and compound, it's people that, like, borrowers are always lenders as well, right?

You have to deposit capital into the protocol in order to lend because you need to have collateral. On Mars, you have non-lender borrowers, right? Which are people who are actually just like trading or they're leveraged LEPA or they're doing something like that. And they're not actually lenders, they're just borrowers, right? But they want to, for example, use some U.S.D.C. to go long on Adam. or they want to use some atom to short atom, right? So I think that's the big difference that on Mars, you have this other class of borrower, which doesn't need to have collateral on the platform,

but actually just wants to do some activity with the capital that's being lent out on the platform. And then in the middle of that, you have, middle is probably not the best way to say it, but you have like governance, which decides on the risk parameters for this different lending activity and effectively like it's stakers who have skin in the game and decide how the protocol should work, what kind of use cases it should lend to, and what the risk parameters for those for those use cases should be. Yeah. So basically for each like sort of collateral type, you're setting some sort of ratios and this

is done via governance votes on Mars or is there like some algorithmic component or is it like purely governance. Yeah, so Mars right now is, it's like the V1 is more like a traditional money market. So yeah, each each collateral type would have a would have a governance vote regarding risk parameters and asset listings go through a governance vote. With V2 that'll be kind of where the credit account functionality goes live and then like every specific integration would have a a governance vote. So for example, if someone wants to go margin long atom, that would be a specific integration where Mars would integrate with the AMM on that chain, whether it's osmosis

and in the case of osmosis or if it's elsewhere, some other AMM, and basically, like, integrate that margin trading functionality and set risk parameters for that as well, like liquidation levels, max leverage, this kind of this kind of thing. example, the rates at which people can borrow and lend, is that sort of a little bit like in compound or array that depends on kind of, you know, the supply and demand and it's updated continuously based on that? Yep. It's very similar to that. It's like a curve, right? Like a king curve that tries to target some optimal utilization and rates go up. Like, you know, kinks at the optimal utilization and then rates go up very aggressively to punish kind of illiquidity.

We did play around with like a dynamic interest rate model using control theory, but it was just like too many variables to launch with to start. But I still think that's, that's interesting. And yeah, there are other things that are interesting there too, but I think for now it's, we're using like Mars is using the kind of algorithmic formula. So you talked a little bit about sort of the components in terms of, you know, borrower, as lenders. what about if you look at it in terms of technical architecture you know what are the components of mars protocol

you know the technical components of mars protocol i think like larry or someone would be best position to speak about this but there's basically mars hub which is the the chain level where where governance happens staking happens and and fees get get get sent there as well Then you have the red bank, which is kind of like the AVE or compound-like module where you can do lending and borrowing and the interest rate formula is enforced and all of that. And then you have like the credit account, which will be its own module, which is called the credit manager, which effectively manages all the different integrations of different borrowings that can be done with red bank assets. Um, yeah, I'm sure like someone like Larry could probably go into more depth, but that's, that's, uh, the, yeah, my understanding. Yeah, makes sense.

I think maybe also like interesting to hear so sort of this Mars, I guess one of the first to have this like hub and spoke model with, with the, that you have. Do you think this is like going to be the standard design for, um, interchain applications? I think so. I think in a way it already is the standard model. Like something like AVE or Uniswap effectively has a model like this, right, where the hub sits on Ethereum, but then they have outposts on like Polygon and Avalanche and stuff like that. And it's already actually governed from Ethereum. I actually don't know how that's done.

I think there's some form of like question messaging that's used there. But I think that already is like the model for a lot of how. how defy works, there are advantages to doing it the Cosmos way, to having having your own chain instead in terms of what you can do with that. But yeah, I do think this is going to be like a pretty standard model for how question applications are deployed. So the advantages being sort of that you have this shared liquidity across the different outposts, which I guess on Uniswap, you don't really have since you have like a new pool and you're not really able to share the liquidity there.

Only like the governance decisions can sort of be transported, I guess, to the other chain. Yeah, you could do that. I mean, like, yeah, with Uniswap, there is no concept of shared liquidity and not with AVE either. But like arbitrageers effectively can, can do that functionality, right? Both on Uniswap and on AVE, you can kind of arb the rates. I think with Mars, the team started.

off with this concept of a rebouncer at the chain level, which would effectively move assets around the different outposts to try and equalize the utilization rates, right? Which just means that if there's a lot of borrowing demand in one place and not so much in the other, then it would move in that. Let's say there's a lot of borrowing demand on chain A, but not so much on chain B. It would move assets from chain B to chain A to try and like satisfy that demand, right? I think now the teams kind of moved away from from, from, from, you know, the team's kind of moved away from from that design for a few reasons.

One of them being that there might be a reason why the rates are lower on a certain chain and higher on another one, like people might perceive it to be more risky, for example, and it's useful to have that like market signal. And it could also lead to situations where, like, let's say a chain is being hacked, you're just consistently putting more capital into the chain that's being hacked, right? And so instead, how I think the Mars team is thinking of implementing that is just as a vault strategy where as a depositor, you can choose to deposit on one outpost, or you can choose to deposit into this vault that rebalances your deposit around different outposts

to maximize the rate, right? And that way it's a decision on the lender side rather than being a protocol-enforce thing. So one of the, especially, I think back in today, this is a while ago, So a very common criticism that, you know, the Ethereum people would have against something like Cosmos was that, hey, you know, you really want to have this sort of like synchronicity and, you know, you can make like one transaction and it calls like, you know, different smart contracts at the same time and this is like very powerful. And the example of use was like this slash loan thing, right, where like within one transaction, you could like borrow some money, do something, make a profit, pay back the money. so you could basically like get capital for free without having to put up any collateral. And, you know, this was kind of the prime example. Now, of course, Cosmos doesn't work like that with IBC.

I think at the same time, you said that the outposts can have this sort of like, you know, instant functionality, right? I can you talk a little bit about, you know, how do the output, how does this work? And, you know, where does the asynchronous nature of like IBC and, you know, intropability still come in? And, you know, do any kind of like issues arise from this kind of design? Yeah, it's a good, it's a good point. So I think if you look at the state on different smart contract chains like Solana, Ethereum, and so like generalized smart contract chains, you actually see that composability is sort of like a meme, right?

Like most of the smart contract state doesn't actually touch each other, and most things don't need to touch each other. So I think that is bullish for the Cosmos thesis. That said, I think DFI is like almost all the composability happens on DFI, and I think that's one of the use cases where you actually do need that synchronicity and that composability.

And so for us, or for me, rather speak for myself, the way I see the Cosmos thesis play out is like IBC is is definitely like a big part of that. But another big part of that is just having control of your own block space and being able to customize your layer one to suit your own use case, right? Which is if I'm launching on a generalized smart contract chain, but actually I don't have any benefit from the composability there because I'm like a. step in or some kind of other application that doesn't like like most applications and ft's etc that don't really leverage composability then why not launch on my own chain where I'm not competing with anyone else for block space and I can customize consensus and like different parts of the of the architecture to actually suit my use case and so that's the way I see I see that happening and then in terms of defy I do think um and I could be wrong about this obviously but I do think most

defy activity will happen synchronously in a single like environment in a single chain. Especially like advanced defy use cases, which for me like the that is sort of one of the biggest killer apps of crypto is like speculating speculation. And I think that like needs to happen like for that to be to be like a enabled in a way that's competitive with a centralized exchange that needs to happen in a synchronous environment. So the way I kind of see it developing is you'll have like many different app chains specialized for their own use cases. And then you'll have a few defy focused app chains, which are kind of like the city centers. And assets will be bridged to those chains trustlessly using IBC.

And the financial speculation stuff will happen there, whereas like the real activity will happen in the in those app chains. And if you think about it, it's kind of similar to the real world, right, where you have like if you're building a fact, You don't build it in the and actually producing stuff. You don't do it in the city center. You go to a suburb somewhere to the outskirts where real estate is cheaper. You're not competing with like banks and like stores for real estate. And then when you need to raise money or whatever, you go into the city center, right? And so I think that's kind of how I see it happening with Cosmos, where you have osmosis,

injective neutron, say, kind of competing to be like these defy hubs, these city centers. And then you have a bunch of different like app chains that are specialized in their own use cases. You know, and there's already obviously like hundreds of them, but there's going to be more and more. And those are sit on sit in the suburbs basically and connect to these defy chains via IBC. And so I don't see defy apps themselves being built leveraging IBC just because of how slow it is. Although there will be use cases for it, right? You see with osmosis, they have their swap, they're like cross-chain swap functionality. They call it an outpost, but it's very different from how Mars or Astroport see an outpost,

where with osmosis, it's like if I'm on Juno, I can swap through osmosis, and all that happens is like, say, I want to swap atom for USC. The atom is sent to osmosis by IBC. It's swapped to USC, and then the USDA is sent back to Juno, right? Whereas with like Mars Astroport concept of an outpost, the swap would actually have to have the liquidity would sit on Juno and the swap would happen there so that it can happen fast and then you can do leverage on top of it and use it as part of collateral and a credit account and this kind of thing. Mars is is also like the Mars hub for example is also one of those app chains, but it connects to those, you know, kind of marketplaces, city centers where you think a lot of the you know the kind of financial activity is going to happen yeah exactly i think mars would want to be present anywhere like as an outpost it would want to be present anywhere that that it thinks might

have a chance of becoming a financial center right and that we'll have and thus will have demand for for leverage um and then the hub yeah it's like a it's like a suburb where uh just governance and token econ happens and manages all the outposts yeah so one thing i've interesting here because like you know when you spoke with sonny and then you know sonny would describe what's the vision for ismosis he would actually be like hey look he sees

there so this should be kind of like a decentralized finance you know and all of the the functionality is that binance has you know they should be there like you know launch path you know trading market in a way described pretty similar to how you describe Mars

right but then obviously you know, in a way, osmosis is sort of like covering this thought exchange functionality at the moment and focusing on that and you guys take like a very different approach in terms of like how to address this.

So I think this is very interesting in how you kind of have like a similar long-term vision but like completely different architectures and at the same time kind of also like working together now. So yeah, it's very fascinating to see that. Yeah, it's a great question. I think we have pretty much the same exact vision as Sunny of the sort of decentralized finance or decentralized FTCX, which is also why it made a lot of sense to build there. And yeah, the way I see it is, osmosis is looking to become the D5 focused chain.

And so initially it was an AMM chain and it was focused on spot. But I actually think osmosis' vision is bigger and the goal is to become like a defy-focused chain and to then have a bunch of different primitives launch on there to fulfill that like finance like functionality. And so I think like osmosis is now working on concentrated liquidity, which also moves it more away from the AMM, right? Because I think concentrated liquidity is like Univu3 style concentrated liquidity is not really an AMM anymore. Right. It's more. like an order book. It really requires like advanced users to be able to to use that properly. And so I think there will be other protocols that emerge to provide that AMM like functionality that do the passive kind of liquidity provision. And then Mars will provide like the credit functionality that like wraps around all the different use cases. There's perps protocols launching with LeVana and a bunch of a bunch of others. So I mean, I think we have the same vision. And our view is that like there's so much to build to make the vision come true, that the best thing to do is to partner with

like really smart builders that they can build, that can focus on building different parts of it rather than try and build everything yourself. And I think like the opposite approach is something like D-YDX, right, where it's going to be their own app chain. They're also focused on the decentralized finance vision, specifically on like leverage trading and perps, but they're actually trying to build out the whole stack themselves. And they're an awesome team, we're investors. So definitely have a lot of respect for them, but it's just like a different approach, right? And it'll be interesting to see which one wins out in the end. Yeah, makes sense. Maybe I guess to sort of wrap up the talk about Mars. Can you sort of, you mentioned quickly

like Mars V2. Can you like sort of talk a little bit about the roadmap for Mars? Where is it at right now? Like, you know, what's coming next? Yeah. I think the next, the next The next big launch for Mars is Mars V2, which will be the credit manager, which enables the credit account functionality and really like the most interesting in my view part of Mars, which is that sub-account for defy functionality. And yeah, I believe Mars is also looking at launching different outposts, but I think the most significant sort of for me is that credit account Mars V2 launch. Maybe one more thing.

The other side is the PIRP side, which I think Mars will either end up partnering with someone to do perps and kind of looking at a few different teams that they're looking to do that, or sort of like building them or having some of the contributors build that, build that themselves. Because I think we're really interested in some of the kind of modern perp designs, like the Oracle-based perps. because I think especially designs like Gaines, and we actually put it in our list of ideas for the accelerator, are super interesting because you can get centralized exchange like execution, right, because you're importing the price from a centralized exchange,

without actually needing liquidity, right, without actually needing to bootstrap like a really deep order book or a really deep AMM or something like that. And with something like Gaines, you actually only need USDC. So I think it is a really deep order book, design like that would be super interesting for Cosmos because, you know, Cosmos has native USC. Unlike something like GMX, you don't need like ETH and Link and the native assets.

And unlike something like DYDX or PURP, like an AMM protocol or an orderbook protocol, you don't need that deep liquidity in market makers and stuff like that. So I think having a protocol like that and then integrating with the credit account such that you could use your liquidity pool shares, your stake. whatever else you might have in your credit account as collateral to then trade perps, that's like really the like an awesome user experience and I think the vision that Mars is looking to build towards. So you talked in the beginning a little bit that you know Mars and Astroport are now somewhat

independent and you can go back to the roots of incubating and you guys also just made an announcement the other day about the accelerator yeah tell us a little bit about that like we'll see how does it work and yeah what has they announced something about yeah um yeah this this was actually the initial vision when we started building as i said was that um we wanted to basically attract our because we've always like the the reason that we started building was we had this uh we had a lot of views about how things should be built, we had like a long list of ideas that we wanted to build and we didn't have like the and we didn't see people doing that so we wanted to kind of like pull up our sleeves and start helping to make that happen ourselves. And the idea with Mars and Astroport was that it would be

the initial projects where we take a more active role and then that acts as like the proof of what we can do and the value we can add and then we can we can like scale it out and do more of a Y Combinator style thing, although we were never going to be more of a Y Combinator style thing in the sense that we work with external teams to help them build out their visions, right? I guess the difference between what we want to do and what Y Combinator does is rather than Y Combinator is obviously like more of a spray and pray approach. They do have their request for startup list, but they accept kind of any kind of idea and any kind of space, and then they have this program. For us, we wanted to go out there with the list of ideas.

that we think matter. Like we always want to, we, we think about the space a lot. And so we, we, we have, like, lists of things that we think should exist. And then find, like, really good founders and teams to come and help build out those ideas. And for a lot of those ideas, we already have designs and stuff like that. And so, yeah, that was kind of the, how we saw the accelerator. And the sort of the reason we want to do it is just that since, like, we've been in crypto six years and we've helped, like, we've been involved in, in investing, consulting, and building like multi-billion dollar super successful protocols.

We've seen all the different, we've seen, first of all of all how hard it is to build a crypto project, right? There's like a bunch of things that make crypto way harder than building a normal startup. There's like the legal side that's super challenging and that everyone spends a lot of money and time on. There's like mechanism design and community and how to make these things actually decentralized, which people spend a lot of time on. There's hiring, which is hard because it's like recruiters don't really work.

And so we wanted to just kind of take all the lessons that we've learned doing this and really transmit them to like a new generation of startups and help build the next kind of generation of really important protocols. So, yeah, we thought really hard. We spoke to projects that we've worked with and also thought really hard about what would we have wanted to have a support and what would we have wanted to know when we started off in this journey. And that's kind of how we designed the accelerator. So the idea is that we're going to pick a few teams and like that. The hackathon, which we can talk about, is a way that we get to know more teams and get more data on teams to potentially work with. And then with those teams, we're going to work with them very intensively for kind of three

to six months, although we're obviously worked with them forever. And the goal there is just to get them set up, get their legal structure set up, get the protocol design done, help them hire, help them set up good operational practices, upsec, everything like that, and then like get them to their first successful funder. raising around, help them raise that. And then obviously we'll keep working with them from then on, but that's really the goal to take like five or more, but for this first cohort, we're focusing on five like early stage projects and really like share everything we've learned about building in the space with them

and like help them get to that first milestone of a successful fundraise. And can you talk a little bit about, I guess, what sort of ideas are there on your list and maybe also, I guess, ecosystems you're looking at, is this like specific to, you know, build on Cosmos, SDK or are you like more broadly like whatever substrate chain you're using works? Yeah. So for the first cohort, we're going to focus purely on Cosmos. We think it's easier for us to add value if we focus on one ecosystem that we have deep knowledge of and that we're excited about. And also like we, we just have more of a network there and stuff like that. that. But we're for the second cohort and like third and stuff, we're definitely going to kind of consider it again and see whether it makes sense to stay on Cosmos or go to an ethel to or even something more kind of speculative like an anomaly or something like that. We'll kind of think through everything from from first principles there. The approach we we kind of take to this is just

to think about from first principles like five years from now. If crypto is to succeed more broadly and if specifically Cosmosis to succeed massively, like what things need to exist for that to happen. And then how can we have the hackathon and the accelerator be places where those ideas get built kind of thing. And so we think about it in every sector as kind of, as I was saying,

sort of like defy, metaverse in gaming, NFTs, and also identity and governance. And think about each of those sectors, what needs to exist and what doesn't exist now and then trying to like spec out some some solutions for that to get teams thinking about how those how those could be built yeah because i think like ethereum is is the clear leader right now in terms of uh like traction dev activity liquidity all of that but it's still pretty small in the scope of things right and so i think every ecosystem is sort of one or two killer apps away from from kind of unseating ethereum in in my mind and so I think part of it is there's some things that are clearly successful in Ethereum that other ecosystems need to have but there's a lot of things that haven't been built yet at all where I think ecosystems can differentiate and are you going to be spending most of your time on the

accelerator on Mars or sort of like split your time or where is your personal focus yeah good good question so I think for for for me yeah probably split time amongst like Mars and Astroport is still really important to labs. They're like the first, they're like our babies and also I think they need to succeed for, for the accelerator to succeed. Like they're the projects that we're more deeply involved in, so really important for us that they succeed. But they have like independent teams that are super smart, that are thinking about this

stuff all the time. So I think we take more of like an advisory capacity there. And so I'm mainly focused on, I think my main focus is going to be the accelerator moving forward and really like building up and you. And also because the accelerator, especially this first cohort, well actually, if it's successful, be really important for Mars and Astroport's success too, right? Because it's going to attract a lot of really important projects to Cosmos, hopefully, and also a lot of projects that actually can be potential integrations for Mars and Astroport too. Yeah, thanks so much for coming on, Jose. I think we covered a lot about like, yeah, Mars, the Delphi story and the accelerator. I think, yeah, really excited for what, for this to exist in the cosmos ecosystem.

And yeah, thanks so much for coming on to Epicenter to talk to us and, yeah, see you around in Lisbon. Yeah, I really appreciate you guys having me. And thanks for all the smart questions. Hope it was useful for people. Absolutely. Thanks so much, Jose. Thank you for joining us on this week's episode. We release new episodes every week. You can find and subscribe to the show on iTunes, Spotify, YouTube, SoundCloud, or wherever you listen to podcasts.

And if you have a Google Home or Alexa device, you can tell it to listen to the latest episode of the Epicenter podcast. Go to epicenter.tv slash subscribe for a full list of places where you can watch and listen. And while you're there, be sure to sign up for the newsletter, so you get new episodes in your inbox as they're released. If you want to interact with us, guests or other podcast listeners, you can follow us on Twitter. And please leave us a review on iTunes. It helps people find the show, and we're always happy to read them. So thanks so much, and we look forward to being back next week.