Project Spotlight — PRISM Protocol
In our latest issue of Project Spotlight, we’re thrilled to introduce PRISM Protocol — a groundbreaking new derivatives protocol which is incubated by TFL and Refracted Labs and allows users in the Terra community to refract their yield-bearing assets into principal and yield tokens; thus, creating novel asset classes in the DeFi space.
Let us dive into the problems that PRISM solves, and cover its V1 and its four initial launch phases. Following this, expect to glean insights into the overall product roadmap and tokenomics of $PRISM.
Problems & Background
As it currently stands, accessing liquidity from yield-bearing assets (YBA) in crypto can be inefficient. Most users pledge assets as collateral to borrow against, exposing themselves to liquidation risk and the need to “overcollateralize”. As typical crypto market volatility ensues with rapid price fluctuations, users’ funds are often lost due to liquidations. Over $100B in Bitcoin liquidations were witnessed in 2021 alone.
Not only is there a clear inefficiency regarding accessing liquidity using YBAs, there also exists little room for navigation when it comes to isolating one’s risk to staking yield, as well as price fluctuations. The implications here are if one holds a Proof-of-Stake (PoS) asset and stakes it, one will be subject to fluctuations in both staking yield and price without having a reasonable way to protect oneself from one side whilst exposing oneself to the other.
The PRISM team aims to solve the aforementioned inefficiencies. Their breadth of experience in the $564 trillion interest rate and currency derivatives markets in TradFi position them with a unique understanding of the underlying mechanisms at play in DeFi. Eager to disrupt the existing staking landscape and empower users, the team is ready to launch PRISM Version 1 (V1).
Welcome to Terra, PRISM
In PRISM’s powerful V1, users will be able to access a host of opportunities, including:
- Instant access to liquidity with no risk of liquidation or daily funding costs due to monetization of $LUNA’s future yield.
- Isolation of one’s risk of fluctuation in $LUNA’s price or staking yield through the splitting of $LUNA into a principal and yield component that can be freely traded.
- Access to capital-efficient liquid staking derivatives and the ability to claim all $LUNA airdrops in one convenient location.
- Leveraged exposure to $LUNA’s staking yield with no risk of liquidation via the selling of future price exposure.
- Ability to set limit orders on the PRISM AMM for assets like $LUNA, $aUST, and $PRISM.
- Voting on governance proposals using the $PRISM token to determine outcomes, such as the assets PRISM lists, the distribution methodology of community funds, and the fee parameters for the protocol.
- Staking of $PRISM to receive $xPRISM — this entitles the user to a share of PRISM protocol fees and voting rights.
- Liquidity provision for $xPRISM to receive LP incentives, AMM LP fees, protocol fees, limit order fees, and PRISM AMM fees.
- Reduced administrative burden, i.e., the compilation and reporting of yield income and airdrops.
These opportunities will be realized with the launch of multiple protocol elements, distributed over four phases. Let us take a brief glimpse at each one, so as to understand how they come to fruition.
Phase 1 — PRISM Forge (Feb. 1st — 5th)
Phase 1 is the token generation event for $PRISM. In this phase, 7% of the total $PRISM supply (i.e., 70,000,000 tokens) will be released to users who contribute $UST to a pool. Users will effectively swap their $UST for $PRISM and be awarded $PRISM in proportion to the amount that they contributed to the pool. The price of $PRISM will be based on the amount of $UST deposited into the pool — everyone who contributes will receive the same price.
This stage is the user’s first opportunity to get their hands on the $PRISM token.
Phase 2 — PRISM Swap (Estimated Feb. 6th)
Two key elements will launch in phase 2:
- The PRISM DEX launches with the $PRISM — $UST pair — this allows users to buy and sell $PRISM on a DEX for the first time.
- PRISM governance goes live, allowing users to deposit their $PRISM into the $xPRISM pool to receive $xPRISM tokens — this entitles them to a share of the protocol fees and governance rights. Note that, in phase 2, only swap fees will be allocated to $xPRISM holders.
Phase 2 is important for $PRISM holders as there will be an immediate use-case for the token after distribution from phase 1. After some astute observations regarding the shortcomings of previous token launch strategies, the PRISM team refined their own.
Phase 3 — PRISM Refract (Estimated Feb. 11th)
Phase 3 is where much of the protocol launch will occur. Here, users will be able to:
- Stake $LUNA to the PRISM vault in order to receive $cLUNA, from which they can then refract into separate principal and yield tokens ($pLUNA and $yLUNA).
- Stake $yLUNA in order to receive $LUNA staking yield in the form of $pLUNA, $yLUNA, and airdrops.
- Provide liquidity in order to receive fees and LP incentives.
- Stake $PRISM in order to receive $xPRISM — this also affords users protocol transaction costs and a percentage of the yield that $yLUNA stakers receive; airdrops and limit order fees included.
- Trade or leave limit orders for $PRISM, $LUNA, $xPRISM, $yLUNA, $pLUNA, $cLUNA, $UST, and $aUST on PRISM Swap.
There are a myriad of ways that one might want to utilize PRISM protocol… the prospects are limitless, and tantalize the imagination from a DeFi perspective. The use-cases for the principal tokens (PT) or yield tokens (YT) generated through PRISM refraction alone, are interesting.
Phase 4 — PRISM Farm (Estimated Feb. 16th)
In phase 4, 130,000,000 $PRISM will be available to farm for users who would like to stake the $yLUNA that they received from refraction in phase 3. The staking yield is converted to $PRISM and provided to $yLUNA stakers. This will be like other Terra community farming events, except for two key differences:
- Each PRISM token earned will be claimable 30 days later in order to ensure a smooth release with no long vesting periods or large unlocks.
- $yLUNA can be removed at any point with no withdrawal fee penalty.
The PRISM Roadmap
V1 isn’t the only innovation the PRISM team has in store. Looking ahead, there are a multitude of fresh and interesting additions to the protocol that should be watched for, including:
- Fixed maturities of 1, 3, 6, 9, and 12 months for YBAs like $LUNA where users will be able to choose the period that they would like to sell their yield for — this opens up a world of new opportunity.
- New PoS collateral types: $DOT, $ATOM, $ETH, and $SOL, mAssets, $aUST, $ANC, $MIR, $MINE, and each of their respective LP tokens, and assets that will be created by many of the new Terra ecosystem protocols soon to launch including money markets, DEXs, and protocols bridging USDC, USDT, and DAI over to Terra.
- Staking of principal tokens like $pLUNA to exercise proxy voting governance rights.
- Leveraged exposure to principal tokens and yield tokens, with the ability to borrow and short them.
- An aim to refract all YBAs such as PoS assets, NFTs, LP tokens and possibly even real-world assets that come on-chain.
$PRISM Tokenomics
Finally, let us now discuss the $PRISM token. As mentioned from a utility standpoint, $PRISM can be staked to get $xPRISM, which affords one with governance voting rights on PRISM and a share of protocol fees. This includes transaction costs, a percentage of the yield $yLUNA holders receive (plus staking rewards and airdrops), swap fees from the AMM and successfully executed limit order fees. Just as with $LUNA, there is a 21-day unstaking period for $PRISM. Providing liquidity for $xPRISM adds additional LP incentives and AMM LP fees on top of that as seen below.
In PRISM V2, validators will be required to pledge $xPRISM as collateral if they wish to be considered for $LUNA delegations from the PRISM vault. This will remove slashing risk for PRISM users and align incentives for validators and PRISM protocol. Also coming to V2 will be a veCRV-style vote locking mechanism whereby $PRISM can be locked for periods (min. 1 week, max. 4 years) to increase the users’ voting power and boost their $xPRISM rewards, LP incentives, and airdrops. In this model, the longer one stakes their $PRISM, the more voting power they have and the larger their yield payout will be.
Additional Resources
If you wish to learn more about PRISM Protocol 👇
