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PRISM Protocol — ELI5 & The Best Yields On LUNA Staking

A step-by-step approach to breaking down PRISM Protocol — splitting of a yield-bearing digital asset into its core components, a yield token (YT) and a principal token (PT).

Context

First, a recap on PRISM’s Architecture

User’s POV

  • Users deposit 100 LUNA in the PRISM “Refract” Vault and in return, get 100 cLUNA (21-day unstaking period to move back from cLUNA to LUNA, similar to transitioning from bLUNA to LUNA)
Fig. 1
  • Users may then choose to split the 100 cLUNA into equivalent amounts of pLUNA (100) and yLUNA (100)
  • Both pLUNA and yLUNA are tradeable on PRISM’s inhouse DEX and have freely-determined values by the open market
  • Since 1 pLUNA and 1 yLUNA is always required to mint 1 cLUNA the equation should always hold such that cLUNA = pLUNA + yLUNA (where it does not, there is an arbitrage opportunity)

What can Users do at each stage?

  • Users can pair the 100 cLUNA with an equivalent amount of PRISM to mint cLUNA-PRISM LP and supply to PRISM DEX as liquidity
  • Alternatively, they can sell 50 cLUNA for an equivalent amount of PRISM — thereby not requiring additional capital
    (Note that there is IL risk)
Fig. 2
  • Users may mint pLUNA-PRISM LP and provide it to the DEX (similar to cLUNA above) but downside IL risk seems to outweigh this strategy
  • Stake pLUNA in governance vault and exercise proxy LUNA voting rights
  • Use pLUNA as collateral to borrow and lend on money markets (e.g. Edge, Mars, etc.)
  • Buy NFTs with pLUNA on One Planet, Random Earth, Knowhere Art, etc.
  • Stake yLUNA in staking vault for normal LUNA staking yield
  • Staking yLUNA in PRISM Farm to earn PRISM tokens
  • Mint yLUNA-PRISM LP and provide to PRISM DEX
  • Use yLUNA as collateral to borrow and lend on money markets (e.g. Edge, Mars, etc.)

Understanding what happens on PRISM’s backend

Fig. 3

Why $PRISM? Revenue & token value accrual

Main revenue source

Fig. 4

All other revenue drivers

  1. 10% of the yield of yLUNA bonded in PRISM (mentioned above)
  2. 100% of the yield of unbonded assets, e.g., yLUNA or cLUNA tokens that are being used to provide liquidity (mentioned above)
  3. 0.1% of the value of all swaps generated on PRISM DEX
  4. 0.3% of the value of all limit orders successfully executed on PRISM
Fig. 5

Getting the highest yield on LUNA with PRISM

Sources: Smart Stake Analytics, Lido, Stader, Terraswap, Astroport, Nexus Protocol, PRISM Protocol
Fig. 6

Using AMPS to get boosted yields

  1. Users can simply stake yLUNA in the PRISM Farm to earn emissions from the Base Pool
  2. Additionally, if they hold xPRISM, they may pledge it in the AMPS vault to farm AMPS
  • There is no lock-up period for pledging xPRISM
  • AMPS accrue over time and will reset if any or all xPRISM is withdrawn from the vault
  • AMPS earned over time gives each user an increased share of emissions rewards from the Boosted Pool
  • Base Rewards (obtained from simply staking yLUNA)
  • Boosted Rewards (obtained from pledging xPRISM to farm AMPS)\

The bullish case for $PRISM & $xPRISM staking APR

Capture as much LUNA in PRISM Vault as possible.

  • Bear case: Capture 2% of staked LUNA market share (5.2m LUNA in vault)
  • Base case: Capture 5% of staked LUNA market share (13m LUNA in vault)
  • Bull case: Capture 10% of staked LUNA market share (26m LUNA in vault)

Let’s look at current figures based on static key assumptions.

BEAR Case

Projected xPRISM staking APR based on static assumptions (BEAR Case)
Sensitivity Analysis (BEAR Case)

BASE Case

Projected xPRISM staking APR based on static assumptions (BASE Case)
Sensitivity Analysis (BASE Case)

BULL Case

Projected xPRISM staking APR based on static assumptions (BULL Case)
Sensitivity Analysis (BULL Case)

Conclusion

PRISM Protocol takes a different approach by focusing on strong value accruals to its native token, while keeping emissions as low as possible.

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cpt n3mo

VC | Investment | Research @ Hashed; Articles are my personal views and not financial advice. @cptn3mox on Twitter