Following the spectacular collapse of the UST stablecoin and its sister token Luna last week, DeFi credit protocol Mars has been proposed to be shut down.
Mars’ total value locked (TVL) fell 99% from $270 million to $2.6 million amid a dramatic downturn in the Terra ecosystem that caused a stir in the entire crypto industry.
Presented by Delphi Labs, the cryptocurrency research firm that helped found Mars, the platform will “automatically close open positions” and “refund users by depositing them to their wallet addresses.”
According to the proposal, “this will essentially shut down the protocol and clear all assets that are currently in place.” Delphi said its decision was driven by the uncertainty surrounding the Terra ecosystem following the “unprecedented collapse of UST and the price of Luna.”
“There is a possibility of Tera becoming financially insecure or permanently halted,” it said, adding that “questions regarding accumulating smart contracts with assets on ‘Terra 2’ and other chains remain unanswered.”
Earlier, the Mars Protocol tweeted Its “compatibility with any Terra hard fork is uncertain without the presence of a reliable stablecoin.”
Mars net worth drops to $2.6 million
Mars is a decentralized lending and lending protocol built on the Terra blockchain. It is designed to be non-custodial, algorithmic and community-governed. A feature called ‘Red Bank’ allows for this, while another, ‘Zone of Mars’, gives access to certain whitelisted addresses to borrow without collateral.
Since its launch in March, Mars has been one of the most active platforms on Terra. At its peak, it grossed over $350 million in TVL. But that figure has now come down to just $2.6 million, according to data compiled by DeFilma.
Thanks to the demise of UST, the stablecoin created by South Korean entrepreneur Do Kwon’s Terraform Labs, and pegged to the US dollar using a complex supply-and-demand algorithm involving the LUNA token.
UST declined to $0.07 and LUNA declined to $0 from an all-time high of $120. Amid the panic, Mars’ net worth under management jumped 96% to $9.3 million in the four days to May 14, falling to $2.6 million as of the time of writing.
Now, Terra CEO Do Kwon has proposed a plan to split the blockchain into a new chain called “Terra 2.0”, but without the algorithmic stablecoin of the old chain. Kwon said the old series would be called “Terra Classic.” The results of a vote on the plan are pending.
Terra problematic to ‘hardfork’ Mars, Delphi Labs says
In its proposal, Delphi Labs argued that the plan to split Terra created many problems for the Mars Protocol.
For example, the competitive governance proposal for the future of blockchain “could lead to a scenario where Mars would need to be maintained on multiple chains.” [such as] Both Terra Classic and Terra 2.0,” it observed.
The company said it is “better that end users, not Mars smart contracts”, hold funds in the event of airdrops arising from the launch of the new Terra series. Delphi Labs is also concerned about the “doubtful economic security” of the isolated chain emerging on Terra.
To facilitate shutdown, Delphi Labs funded “Red Bank with substantial LUNA, UST and ANC” [tokens] To close all open positions without requiring users to pay off outstanding loans first.”
The fate of the MARS token is unclear. According to CoinGecko, the coin is down 1.1% to $0.001 in the past 24 hours. MARS is down more than 99% from its all-time high of $0.25 in April.
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