Prism Protocol enables users to split digital assets into yield and principal components, unleashing the next level of DeFi composability.
Launched originally on the Terra Classic network, in February 2022, Prism quickly found product market fit with it’s innovative LUNA derivatives peaking at ~$800m TVL, ~$70m in liquidity on it’s native AMM and ~$3Bn annualized trade volume within 3 months of launch.
The subsequent collapse of UST, LUNA and the Terra Classic network is well documented and the current state of the Terra Classic network means that continuing to support Prism Protocol on Terra Classic is unviable, at least in the short term.
With adversity comes opportunity, the collapse has given the Prism Protocol builders the opportunity to go back to the drawing board and reimagine the protocol to create a more sustainable future that is resilient against the capitulation of a single token or blockchain and in this article we will explore the core roadmap as we rebuild Prism.
Starting with cLUNA:
The first product that Prism will launch will be the new cLUNA, an auto compounding liquid staking derivative of LUNA. Users will be able to deposit LUNA into Prism Protocol and in return receive cLUNA.
For those not familiar with an auto compounding token, at launch 1 cLUNA will be equal 1 LUNA, but as LUNA staking rewards are accumulated cLUNA will continue to increase in value relative to LUNA, similar to other liquid staking derivatives already launched on Terra such as LUNAX, STEAK & ampLUNA.
At the launch of cLUNA we expect there to be a LUNA/cLUNA liquidity pool.
Not just another LUNA Liquid Staking Derivative:
cLUNA will differentiate itself from other staking derivatives in 2 key ways:
- cLUNA has been rebuilt to the ICS-20 token standard which means it will be transferrable over IBC, allowing cLUNA to be utilised across Cosmos Zones that are IBC enabled. We could see cLUNA in Osmosis LPs, utilised as collateral in the new Mars Protocol or trading in limit order books on Injective or Kujira Protocol to name just a few potential use cases.
- Prism believes it’s important that holders of Liquid Staking Derivatives are able retain their governance power, otherwise as a staking derivative scales, it can put too much governance power in centralized hands. Prism v1 was very close to launching proxy governance for pAsset holders and this will be a key development focus post launch.
An Iterative Approach:
Prism Protocol’s expansive new roadmap requires liquid staking derivatives as a core building block and as such there will be a phased launch, starting with cLUNA and adding new features in an iterative manner. Below are some of the key roadmap items post launch:
More Liquid Staking Derivatives:
Prism will look to introduce more Liquid Staking Derivatives of L1 tokens from IBC enabled chains, EVM chains and otherwise. However instead of utilising existing derivatives from 3rd party providers, Prism will build out it’s own auto compounding cAssets that we will bridge to the Prism Hub.
Why build out cAsset derivatives?
- Prism will build derivatives to the ICS-2O standard so that they are transportable across IBC in the same way as cLUNA will be.
- Prism wont have to regularly collect and transport staking rewards as the assets will be auto compounding.
- Prism can control the validator set ensuring trusted, robust and reasonable commission validators are stewards of deposited yield bearing assets.
- Enabling throughput governance for pAssets can be implemented through protocol ownership of the staking derivative.
- Prism can control smart contract risk by minimising reliance on external protocols.
Prism derivatives could include tokens such as: ETH, SOL, AVAX, ATOM, OSMO, JUNO, SCRT, INJ etc.
Focussing on Refracting Assets with Maturity Dates:
Whilst the original Prism Protocol whitepaper focussed on splitting tokens into their principal and yield components for fixed maturities, based on the founding team’s experience in the interest rate and currency derivatives markets in traditional finance. Prism v1 launched with only the ability to split LUNA into perpetual derivatives.
As Prism Protocol is relaunched, the focus will initially be on fixed maturities, with 1, 3, 6 and 12 month maturities currently being considered. In order to achieve this Prism has been working on a bespoke AMM solution to account for time decaying yTokens that are trending towards $0 as the yield tokens mature. Prism will also look to offer, or integrate with, an order book solution so that yield and principal tokens can be exchanged directly between market participants via a CLOB (central limit order book).
Perpetual tokens will also be enabled once proxy governance has been enabled, allowing people to trade their governance power.
The PRISM Token:
The PRISM token was a key feature of Prism v1 with protocol revenue being utilised to buyback PRISM tokens with those tokens being distributed to xPRISM (staked PRISM) holders. PRISM was also paired with each asset in the Prism Swap AMM and xPRISM holders could pledge their xPRISM and accumulate AMPS for increased farming rewards, as well as earning enhanced protocol governance power.
A governance token will be launched as features of the new protocol are rolled out with fresh tokenomics and value capture to reflect the reworked protocol features and roadmap.
The token will not be launched alongside the cLUNA launch, but likely alongside the ability to refract assets within the protocol as value capture is established and associated utility for the governance token.
If I owned PRISM tokens on Terra Classic, will I be airdropped the new token?
PRISM protocol had a strong and vibrant community on Terra Classic and as such may airdrop a portion of any new tokens to members of that community. The details of any airdrop distribution have not yet been finalized, but any snapshots that could be used for future airdrops have already been taken.
The goal of the redesigned Prism Protocol can be summarised as:
- Prism will be a hub where users are able to trade the yield of major L1 and IBC assets
- Prism will enable users to trade different yield maturities of those assets
- Prism will be a centre for decentralized governance of L1 tokens via pAssets
To facilitate these goals Prism will follow a multistage approach:
- Create auto-compounding liquid staking derivatives across a range of L1 tokens
- Create a PRISM refracting hub where these staking derivatives can be split into principal and yield derivatives of differing maturities
- Create the ability to bridge Prism derivatives to the Prism Hub and across multiple chains where they can find additional utility
For more information on Prism Protocol, visit our Notion site: prismprotocol.notion.site