Prisma Finance quietly emerged in the first half of 2023, gaining support from top industry founders and institutions like Curve, Convex, Tetranode, and more. On November 2nd, the project released its token $PRISMA and increased the debt cap. On the same day, a large address related to Justin Sun deposited 110 million USD worth of wstETH and minted over 60 million USD worth of mkUSD stablecoins.
As of November 4th, the total supply of its protocol stablecoin $mkUSD exceeded 178 million. However, Prisma Finance recently raised the stablecoin minting cap for collateral wstETH from 100 million to 200 million through a community vote.
According to Defillama data, as of November 6th, the protocol's Total Value Locked (TVL) reached 364.27 million, ranking 19th within the Ethereum ecosystem. It has far surpassed the leading project Lybra Finance in the LSDfi domain, establishing itself as a dark horse. According to Dune Analytics:
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The protocol has 89,047.13 wstETH collateral with 451 unique addresses.
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The protocol has 7,717.32 cbETH collateral with 180 unique addresses.
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The protocol has 30,602.12 rETH collateral with 537 unique addresses.
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The protocol has 32,786.18 sfrxETH collateral with 349 unique addresses.
1. LSDFi Status Quo and Future Prospects
Following the completion of Ethereum's Shanghai Upgrade this year, the Ethereum staking market has entered the right track. Currently, the ETH staking rate exceeds 23%, with over 28 million ETH locked in the Beacon Chain and 863,000 active validator nodes. The Ethereum Liquid Staking Derivatives (LSD) market has also seen rapid growth, with a market cap of over $19 billion, and the TVL of the LSD protocol has exceeded $23 billion, ranking first in the DeFi category. LSD provides the foundation for the entire Ethereum staking ecosystem, releasing locked liquidity while enhancing the network's security. The LSDfi track was born on the basis of LSD.
LSDfi refers to DeFi projects built on top of the LSD protocol, such as Lybra Finance and Pendle Finance. By providing additional yield-generating opportunities, the LSDfi protocol allows LSD holders to leverage their assets and maximize their returns. The LSDfi protocol utilizes underlying assets like stETH, frxETH, and other LSD assets, further unlocking liquidity within the Ethereum ecosystem, providing sufficient volume and innovation support for the DeFi ecosystem. Since May this year, the funds under LSDfi's management have exceeded $400 million. Compared to the potential scale of LSD, there is still significant room for growth.Prisma Finance is a subcategory within the LSDfi protocol that involves minting stablecoins backed by LSD assets. These stablecoins require over-collateralization through liquidity staked tokens and carry liquidation risk. Prisma Finance falls under this category and offers three significant advantages:
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Store of value: LSD-backed stablecoins are over-collateralized, making them relatively price-stable and serving as a reliable tool for value storage. Additionally, they offer users earnings in $ETH. As the protocol's yield rates increase, it will further stimulate the adoption of these stablecoins.
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Increased Earnings: ETH staking returns may no longer satisfy users' high-yield demands, especially during extended bear markets. LSDfi offers an annual yield of over 5%, which is highly appealing to users.
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Liquidity Unleashed: LSD unlocks liquidity for collateralized ETH, while LSDfi further unlocks liquidity for LSD tokens, bringing innovation to the LSD ecosystem. With growing trust in the security of the Ethereum ecosystem and the yield from $ETH staking, the LSD and LSDfi will be one of the areas for future expansion.
2. The Strong Rise of Prisma Finance
Prisma Finance was officially deployed on Ethereum in early September. It is a stablecoin backed by a combination of LSD assets, a fork of Liquity, with significant improvements. Prisma Finance has created a robust and truly decentralized stablecoin protocol with favorable and flexible collateral parameters, making it attractive for those wanting to get the best out of their LSTs without tail risks from other stablecoins. Through Prisma, users can use liquid staking tokens as collateral to mint over-collateralized stablecoins ($mkUSD). Prisma DAO is responsible for parameters, emissions, and protocol fees. The protocol's income comes from four main sources: (1) minting fees for $mkUSD, (2) penalties for early collateral unlocking, (3) the price of the $PRISMA token, and (4) 1% of borrowing interest revenue. These income streams ensure the continued stable operation of the protocol.
Prisma Finance has following three key features:
a) Supporting Multiple LSD Collateral Options
Prisma supports multiple collateral options such as wstETH (Lido), cbETH (Coinbase), rETH (Rocket Pool), sfrxETH (Frax). And the protocol automatically utilizes the income generated from user’s collateralized LSD assets to repay debts.
b) Achieving High APR through multiple returns
In addition to the Ethereum staking rewards provided by the LSD protocol itself, users can achieve multiple returns through the Prisma Finance protocol, Curve, and Convex by staking stablecoin $mkUSD and the protocol governance token $PRISMA. These multiple returns include transaction fees, rewards in $PRISMA, $CRV, and $CVX. This may enhance the competitiveness of $mkUSD among competitors.
c) The stablecoin $mkUSD has real demand.
$mkUSD is an over-collateralized stablecoin, providing users and the protocol with a certain level of security. $mkUSD is a yield-bearing stablecoin, with the protocol not prioritizing its use as a medium of exchange. Most users hold $mkUSD to earn the annual interest rate it offers. Additionally, the protocol will increase incentive weights for a specific trading pool through participation in the Curve wars. This further enhances the performance and demand for the $mkUSD, such as bribes and competition for CRV emissions for deep liquidity.
3. Tokenomics
PRISMA is the governance token of the Prisma protocol with a maximum total supply of 300 million. All tokens are minted immediately when the protocol is deployed. Tokens are initially held by the Treasury and released gradually over time. The treasury balance is not considered to be in circulation.
The supply of PRISMA is allocated as follows:
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62% (186,000,000 PRISMA) are allocated towards emissions. These emissions are directed by the Prisma DAO and incentivise certain actions within the Prisma Protocol. Emissions can additionally be used to incentivise liquidity on liquidity pools.
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20% (60,000,000 PRISMA) are allocated to the Core Contributors. These tokens will be unlocked linearly for 12 months starting at Genesis.
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10% (30,000,000 PRISMA) is allocated to Early Supporters who assisted in bootstrapping costs associated with the initial development of the Prisma Protocol. These tokens will be unlocked linearly for 12 months starting at Genesis.
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5% (15,000,000 PRISMA) will be held in the Prisma DAO Treasury.
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3% (9,000,000 PRISMA) will be distributed towards
Users can participate in the protocol's governance by locking $PRISMA, and the protocol uses a veToken model similar to Curve to allocate governance weight, with a maximum lockup period of 52 weeks.
$PRISMA holders will have the ability to incentivize specific pools, which means that LST providers may be interested in incentivizing $mkUSD with their own LST. This can create a positive feedback loop for the demand of $mkUSD. According to the whitepaper, voters can direct issuance towards using specific collateral for minting, maintaining active borrowing with specific collateral, and rewarding any LP token holders. Considering the crucial role of deep liquidity in maintaining stability, this will be a key factor distinguishing $PRISMA from its competitors.
$PRISMA was listed on HTX exchange on November 2nd, and HTX has also launched corresponding mining and earning campaigns. Users can earn $PRISMA rewards by locking TRX and enjoy higher returns.
Here's an introduction and link to the HTX primepool:
4. Risks and Opportunities
It's important to note that Prisma Finance still carries certain risks related to capital efficiency, collateral liquidation, and fluctuations in the Prisma token price. Currently, relying solely on Ethereum staking generates a yield of around 3.8%, which may not be very attractive to users. However, LSDfi introduces innovative ideas and higher returns, further boosting the growth of the LSD market. Based on Prisma Finance's current performance, it is expected to bring ongoing innovation to LSD and LSDfi.