PRISM: Extreme Risk De-Fi

Decentralised Finance (De-Fi) continues to be the number one draw card for current blockchain engagement and investment with NFT's (Non-Fungible Tokens) making a slow and steady growth to capture a slice of the market. De-Fi is no stranger to change with many iterations and evolutions of the investment style continuously developing, building and bringing new ways to invest over the years.

If you have been floating around Twitter and Terra (Luna) Network chats you would have by now heard about Prism which is an exciting and new form of De-Fi that is potentially going to unlock a new form of participating in Proof-Of-Stake (PoS) and Proof-of-Work (PoW).

PoS & PoW

Early renditions of earning crypto for participation was solely reserved to miners who secured the network which was introduced with Bitcoin. The rest of us had to make do with buying, telling and trading tokens to actualise profit and derive value.

Than staking emerged where we could earn a passive income by delegating your tokens to validators and gain a % of their income. For an in-depth breakdown of what PoS and PoW is please have a read of this article.

Prism splitting staking rewards in your hands

Information currently surrounding Prism is still very limited and I will do my best to summarise what the protocol is and how it will work from information I have gathered from engaging and reading the protocols official Discord server.

When staking Luna the native token of Terra Network stakers receive a number of rewards paid out in stable coins and air drops. Also what occurs one hopes is a price increase which this is a standard of all staking blockchains. Terra also requires a 21 day unstaking period which is a common theme amongst blockchains.

What Prism is attempting to do is split price action from staking rewards and provide access to investors with the ability to speculate both on price and utilise the divs instantaneously without the need to unstake.

Prism will achieve this by splitting the asset into two separate tokens a principle token which will reflect the price of the asset, in this case Luna and a yield token which will reflect the yields of the asset. These assets will be called pLuna (Principle Luna) and yLuna (Yield Luna).

Prism will also have its own native token xPrism which will be used to provide liquidity and participate in governance.

How will it work?

Investors will be able to provide their Luna tokens and immediately receive the YT and PT tokens and will instantly be able to trade it. i.e. if you're only interested in yields and Luna airdrops you can sell the PT and buy more YT to maximise your yields. Alternatively you can sell your YT and purchase more PT if what your banking on is a Luna price increase.

You will also be able to purchase YT and PT on the open market which enables some arbitrage possibilities as PT will be eligible for trade of 1:1 with Luna after a lock period it can provide a cheaper or discounted entry into Luna.

How is price set?

According to information on the protocols official Discord the price stability will be set by an Automatic Market Maker (AMM) which will be determined by the market for each asset.

Ay current Prism is just launching and there is one day left to provide UST in the Prism Forge noting that this is the price development stage and there is no benefit to depositing UST at this stage or after the launch as investors will be able to purchase the tokens at the same price as they are developing a fair launch. You can read a full break down of the launch, requirements and process Prism Launch

Future Assets

The team is already discussing the addition of pETH and yETH as well as a large range of other assets which are not accepted on the Terra Network since the Columbus 5 mainnet upgrade. These include Osmosis, Cosmos, Secret and a range of other network native assets.

Opinion

The possibilities are endless and this is a new look De-Fi and at current I have some concerns around the AMM and the price stability if we look to Nexus protocol a similar anti liquidation model was developed with the establishment of a reserve to pay down at risk debts. Good in theory but it has succumbed to price volatility. I fear that the pLuna may also suffer from the same fate as I can't particularly see investors whom speculate on Luna price wanting to split their token.

however, Prism does provide investors the ability to sell yLuna and buy more pLuna which as we have seen is what occurs the most as Luna stakers dump DIVs and airdrops to buy more Luna. A costly move that has seen a number of Terra Protocols cease airdrops or develop new ways of receiving them to ensure they go to their core user base or people interested in their projects.

Prism may actually amplify this if everyone is dumping yLuna to purchase more pLuna I can't see the AMM keeping up with price correlation but rather a mismatch in the token price.

However, Prism does bring a new form of De-Fi investment opportunities and being able to gamble on the future price of an asset and it's yield is something new. Given the current market volatility and the ever changing APY on Luna I am not entirely sold on the protocol at this stage. It is the first of its kind as we have seen in the past protocols that push the boundaries lead to new and improved industries.

For that reason I am labelling Prism as an extreme risk De-Fi protocol if you want to know more and engage with the team you can visit their official channels:

Twitter Discord Telegram Medium website youtube litepaper

*Image sources provided supplemented by canva pro. Information sourced from discord and official channels. This is not financial advice and readers are advised to undertake their own research or seek professional financial services *