DeFi traders are pushing Prisma Finance, a new lending protocol that offers a stablecoin backed exclusively by Liquid Staking Tokens (LSTs).
Prisma launched on September 1st and is conducting a cautious launch, meaning it will gradually increase the borrowing limit of its stablecoin mkUSD while ensuring that the emerging protocol works as intended.
On September 15, Prisma raised the cap from $20 million to $30 million – this level was reached in less than two hours.
The primary yield opportunity driving demand is a module called “Stability Pool,” which has attracted over $21 million worth of mkUSD. The stability pool is used to pay off debts that need to be liquidated. In return, the pool receives the collateral of the liquidated users, according to Prisma’s documentation. This mechanism was developed by Liquity, the issuer of the LUSD stablecoin, which is exclusively backed by ETH.
One of Prisma’s seven anonymous key contributors said the decision to develop Prisma was in some ways self-serving. “We as co-founders of the protocol are building it with ourselves as users in mind,” he said on the Edge Pod with DeFi Dad, an advisor at The Defiant. “We are all participating in DeFi. We all have LSTs. We all use collateralized debt protocols.”
Liquid staking boom
Prisma leverages narratives that have proven resilient during the crypto bear market – one of which is Liquid Staking Tokens (LSTs), assets that represent staked Ether. The sector has exploded since Ethereum enabled withdrawals of staked ETH earlier this year – nearly 12 million ETH, worth over $19 billion, are staked in LSTs.
LST Sector Breakdown
Another reason is stablecoins – DeFi heavyweights like Aave and Curve have launched stablecoins this year to join existing players like Frax and Maker.
And finally, Prisma applies “veTokenomics” to its PRISMA token. This is a token model developed by Curve, a leading decentralized exchange, that gave birth to the CRV liquidity incentive competition known as the “Curve Wars.”
With Curve, users lock the protocol’s CRV token in exchange for escrow-held CRV (veCRV). By holding veCRV, users can vote on the flow of CRV emissions into the liquidity pool of their choice.
PRISMA will work in a similar manner – holders of vePRISMA will be able to route additional PRISMA rewards to those who mint additional mkUSD debt, to the stability pool, to depositors of certain collateral, or to those who provide liquidity to a PRISMA pair on Curve, according to the Documentation.
According to a post from the company, vePRISMA holders will also receive additional PRISMA rewards. The PRISMA token has yet to go live.
Community governance
The Prisma co-founder cited Liquity, another collateralized debt protocol, as inspiration for the protocol. The team behind Liquity placed emphasis on a governance-minimized approach during its development.
Still, PRISMA holders have a high degree of control over the protocol, according to the anonymous co-founder. “I cannot think of a single economic parameter in the protocol that is not controlled by the community,” they said.
For example, Prisma may charge fees when users borrow mkUSD, when they repay their loans, or on an ongoing basis in the form of an interest rate.
Of course, despite Prisma’s initial success, the project is still very new and in a competitive environment. Users can already mint DAI against stETH and rETH, the two leading LSTs, with Maker, and can also borrow other stablecoins against LSTs with Aave. DeFi’s largest money market.
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