Prisma Finance is a DeFi project that aims to maximize the potential of Ethereum liquid staking tokens (LSTs). It introduces a stablecoin called acUSD, which is over collateralized by liquid staking tokens. The stablecoin is designed to be capital-efficient and offers additional incentives through integration with Curve and Convex Finance.
This is a write up of my research notes and is not sponsored in any way. At time of writing I have no allocation to Prisma Finance or their tokenised products.
What Is Prisma Finance?
The Prisma protocol is built upon the Liquity codebase and their popular LUSD product.
A user will deposit one of the following LSTs which will enable them to mint acUSD.
- wstETH (Lido Finance)
- cbETH (Coinbase)
- rETH (Rocket Pool)
- sfrxETH (Frax Finance)
- wbETH (Binance)
This allows users to leverage their Ethereum staking rewards while maintaining a stablecoin position.
Liquidity for acUSD is incentivised through the distribution of PRISMA alongside CRV/CVX in Curve liquidity pools.
The PRISMA Governance Token
Prisma adds flexibility and governance control over collateral parameters, emissions, and protocol fees through its native governance token PRISMA.
Using the veToken model, PRISMA holders have control over various aspects of the protocol, such as the stability pool, pool parameters for new collaterals, protocol fees, emissions distribution, and governance participation. This governance control allows the community to incentivize the minting of acUSD or adjust mint and borrow fees on specific collaterals. Additionally, PRISMA emissions can be directed to incentivize liquidity providers via locking LP tokens.
The market for Ethereum Liquid Staking Tokens (LSTs) is still growing after the recent Ethereum updates. It is currently valued at just under $20 billion USD, making it the largest DeFi category by total value locked (TVL). Prisma aims to tap into this market by providing liquidity and capital efficiency to holders of liquid staking tokens.
Prisma is currently pre-launch and being audited with a token generation event expected fairly imminently and a full launch planned later in the year.
Prisma has a number of competitors in the LST backed stables sub-sector such as Lybra and Gravita. These projects will be competing for users and TVL with large trusted protocols like Aave which now accepts stETH for deposits. It’s not clear at this stage who the winner will be but there is significant opportunity for a protocol which can become a market leader for both algorithmic stablecoins and borrowing based on LST collateral.
