Research

Published:: September 25, 2024

Last updated:: September 26, 2024

Key Takeaways

Appchain for TradFi: Pryzm's appchain enables advanced DeFi customization and scalability.

Cosmos-Native: Built on Cosmos for seamless interoperability with other chains.

Yield Tokenization: Pryzm tackles DeFi's limitations by tokenizing future yield, opening new opportunities.

pTokens & yTokens: The innovative split enhances liquidity and flexibility for yield management.

Diverse Revenue: Pryzm generates diverse revenue streams, benefiting $PRYZM holders.

Decentralized Treasury: Community-managed, enabling strategies like buybacks and rewards.

Unique Value: Pryzm's yield focus sets it apart, offering benefits and fostering collaboration.

Introduction

DeFi's transformative power has rippled across the financial landscape, offering individuals unprecedented control over their financial destinies. At its core, yield serves as the engine driving this revolution, attracting users and capital to platforms promising lucrative returns. The ability to generate passive income and optimize yield has become a cornerstone of DeFi's appeal.

However, navigating decentralized solutions can be complicated, filled with fluctuating yields, asset lock-ups, and limited access to fixed-income opportunities. This volatility and uncertainty create significant hurdles for investors seeking a confident and stable approach to DeFi.

Pryzm steps in to address these challenges, aiming to simplify and enhance yield optimization. Through the tokenization of future earnings, users gain newfound control and flexibility. Imagine selling your future income today, securing a guaranteed income stream, or strategically capitalizing on changing yield expectations – all made possible by Pryzm's groundbreaking approach.

By converting future yields into tradable assets and enabling their exchange, Pryzm is reshaping how users interact with yield opportunities. This innovative strategy addresses fragmented liquidity, volatile returns, and the scarcity of fixed-income products, providing investors with a clearer and more predictable path towards financial growth.

What is Pryzm?

Pryzm is a layer-1 blockchain carefully designed for powering harvest, trade, and utilization of yield-bearing assets. It enables individuals to tokenize and trade future yields from a wide array of cryptocurrencies, hence developing an innovative and flexible way for the management of financial assets.

Leveraging the robust Cosmos SDK framework, Pryzm not only achieves a high degree of modularity and scalability but also establishes seamless interoperability within the Cosmos ecosystem. This design enables native connectivity with other blockchains via the Inter-Blockchain Communication protocol, expanding the selection of yield-bearing assets available for tokenization and trade. In addition, this approach keeps transaction fees low, making Pryzm more accessible and cost-effective for a wide range of investors.

Pryzm's adoption of Optimistic Execution promises to deliver exceptional transaction processing speeds. This technology enables Cosmos SDK chains to build blocks with unprecedented velocity. In Pryzm's case, internal testing has demonstrated remarkable block times of ~0.4 seconds.

What differentiates Pryzm from other chains is the much greater emphasis on yield optimization and trading flexibility. This very innovation goes deep into its architecture, where it embeds specialized modules directly within the blockchain. This fundamental design choice makes possible those truly transformative use cases that will redefine how users can engage with and benefit from yield-bearing assets.

At the heart of this innovation is a module that empowers users to unlock their assets' future yields and then tokenize them. Basically, Pryzm creates an asset class with innate liquidity by isolating and then representing such expected earnings in tradable tokens. This allows users to trade, hedge, or leverage their future income streams on AMMs of Pryzm itself or any other compatible platform. This kind of control and flexibility on yield in the future is unprecedented, enhancing user experience to further create an extremely strong tool for strategic portfolio management.

The second unique module that comes as part of Pryzm's blockchain revolutionizes liquid governance participation. Staking on the platform does not let users yield generation at the cost of governance rights; rather, they will continue to have a say in the network's decision-making processes. In a first-of-its-kind move, Pryzm enables users to delegate or even vend their voting power, in turn creating a dynamic market for governance. This feature gives rise not only to further community engagement but also opens up an extra avenue for yield generation.

This is further elaborated through its suite of specialized modules in facilitating decentralized asset exchange. It has a special algorithm designed for trading yield and principal tokens, making available at the fingertips of users on the PRYZM DEX. A wide array of sophisticated tools, which include a yield AMM, multi-asset AMM, and a cutting-edge algorithm that enables users to split trades strategically to minimize price impact and ensure a more favorable average execution price.

The oracle module acts as a proof for the adaptability and broad applicability that characterize Pryzm. Through follow-up on changes in yield for blockchain assets and RWAs alike, this module contributes to the showcasing of the ability for the platform to bridge traditional finance with the fast-emerging world of DeFi.

Basically, it is much more than technological innovation that differentiates Pryzm. In other words, it represents a paradigm shift in the way yield is currently perceived, accessed, and used by users—making it move from a passive income stream to a dynamic and strategic one.

Here's a breakdown of Pryzm's key features:

Yield Tokenization: Transform your potential future earnings into a tradable asset, giving you more control and flexibility over your investment.
Fixed Yields & Discount Tokens: Secure predictable returns by locking in a fixed yield or purchase your preferred tokens at a discounted price.
Liquid Governance: Participate in network governance and even trade your voting power for additional benefits.
Liquid Staking Derivatives: Earn yield on your staked assets while maintaining their liquidity for further use in the DeFi ecosystem.
Specialized AMM: Experience efficient token trading with minimal price impact and capitalize on lucrative liquidity provision opportunities.
Limit Orders: Set your desired buy or sell prices and let the platform execute trades automatically, saving you time and effort.
DCA & Time-Weighted Trading Tools: Mitigate the risks of market volatility by gradually accumulating or selling assets over time.
Restaking: Maximize your yield potential by restaking your assets to earn rewards from multiple sources, including native asset yield, swap fees, and Pryzm chain revenue.

At the heart of Pryzm's vision lies this community-centric approach. The upcoming mainnet launch is accompanied by major events: the StakeDrop campaign that rewards users for delegating tokens to Pryzm validators, and AUUUDROP that fosters a decentralized and community-driven ecosystem by encouraging users to participate in growing the network.

By creating a decentralized ecosystem with wider participation and involvement in governance, Pryzm paving the way for a more inclusive and democratic financial system.

What assets could Pryzm tokenize yield on?

Pryzm's groundbreaking approach to yield optimization involves splitting assets into two components: one representing the asset's value and another capturing its future yield. This innovative mechanism unlocks opportunities for more nuanced investment strategies and active trading of anticipated returns.

Some examples of assets that could be tokenized on Pryzm include:

Proof-of-Stake assets: Cryptocurrencies from IBC-connected blockchains, such as ATOM, TIA, INJ, DYDX, and OSMO, can be staked on Pryzm to earn yield while also participating in governance.
Liquid Staking & Restaking Derivatives: Tokens from external providers like Lido that represent staked assets and their accumulated rewards can be further leveraged on Pryzm for additional yield opportunities.
Liquidity Provider Tokens: Tokens that represent shares in liquidity pools on decentralized exchanges can be tokenized to manage the inherent volatility of yield generated from trading fees and liquidity incentives.
Tokenized Real-World Assets: Traditional financial instruments like bonds and dividend-yielding stocks can be brought on-chain and their income streams tokenized, offering exposure to real-world markets within the DeFi space.

Being designed as a universal platform, Pryzm is able to accommodate yield-bearing assets from various blockchains and traditional markets. Its permissionless, scalable, and secure infrastructure, combined with an oracle that reports yields from any source, makes it possible to tokenize and trade yield on a wide range of assets. The integration of prominent bridging providers like Axelar and Wormhole further enhances Pryzm's interoperability, opening doors to assets from diverse ecosystems.

Pryzm's Alchemy: Turning cTokens into Yield Gold

In the DeFi world, yield represents the return on an investment - the fruit of your financial labor. When it comes to Liquid Staking Derivatives (LSTs), this yield is derived from staking rewards. Assets that bundle together both the original investment and its accumulated rewards, such as LSTs, are known as yield-bearing assets. This category also includes other rewarding assets like LP tokens, compounding tokens, and certain stablecoins.

On the Pryzm, these yield-bearing assets take on a new form: Collateral Tokens, or cTokens. They are the gateway to a unique financial alchemy.

Imagine depositing your funds into a bank account, expecting it to generate a percentage over time. What if you could split that account, separating your initial deposit from the generated percentage, with the ability to use them while continuing to earn income?

This is where Pryzm's magic lies: the ability to 'refract' cTokens into their constituent parts, allowing for independent trading and utilization.

Refraction, much like a prism splitting light into a spectrum of colors, is the process by which Pryzm separates a cToken into two new tokens:

pTokens (Principal Tokens): These represent the original, underlying asset.
yTokens (Yield Tokens): These represent the future yield or rewards associated with the original asset.

Let's use the example of staking Atom on Pryzm. You stake your Atom, it's converted into cAtom, and then you refract this cAtom. Now, you have pAtom, representing your staked Atom, and yAtom, representing the future staking rewards you'll earn.

This separation isn't just theoretical; it's time-bound. You choose a 'maturity date' when you refract the cToken. For pTokens, maturity represents the redemption date for the original cToken, while for yTokens, it marks the end of their yield-generating capability.

In essence, Pryzm empowers you to break down yield-bearing assets, giving you granular control over your investments and opening up a world of strategic possibilities in the DeFi space.

pTokens: Fixed Yields and DeFi Strategies

pTokens, or Principal Tokens, encapsulate the core value of a yield-bearing asset on Pryzm. When they reach maturity, they can be exchanged back for the equivalent value in the original cToken.

Imagine you split cAtom, an Atom LST, into pAtom and yAtom. Your pAtom represents the underlying staked Atom and guarantees its value at maturity.

Unlocking Fixed Yields

pTokens offer a unique way to secure fixed yields in DeFi. Purchase a pToken at a discount to its underlying asset, and you've essentially locked in a profit. Upon maturity, redeem the pToken at full value for the equivalent cToken, capturing the price difference as your yield. It's like buying an asset on sale, knowing it'll return to full price by a certain date.

Beyond fixed yields, pTokens offer diverse opportunities:

Trading: Profit from price fluctuations by buying pToken when fixed yields are high and selling them when fixed yields move lower, profiting from the price difference.
Arbitrage: Utilize price fluctuations between pTokens, yTokens, and cTokens for potential gains.
Steady Income: Hold pTokens until maturity for a guaranteed yield upon redemption.
Liquid Voting: Participate in governance decisions while earning potential rewards.
Liquidity Provision: Provide liquidity to pToken pools and earn fees and yield.

pTokens bring predictability to DeFi yields, enabling new trading strategies and governance participation. Whether you prioritize stability or seek active opportunities, pTokens offer a versatile tool for navigating the DeFi landscape.

yTokens: Capturing the Ebb and Flow of DeFi Yields

yTokens on Pryzm represent the dynamic, ever-changing yield component of a yield-bearing asset. Think of them as the 'interest coupons' detached from your principal investment. For instance, when you refract a cToken like cAtom, you get pAtom (your principal) and yAtom (the yield). Holding yAtom lets you claim those sweet staking rewards anytime until its maturity date. After that, it's like an expired coupon – no more value.

Unlike their pToken counterparts, yTokens don't offer fixed returns. Their yield mirrors the underlying asset's performance. This means your actual yield could be higher or lower than initially anticipated, adding a layer of excitement (and risk!) to your DeFi journey. For instance, if Atom staking APY surges during your yAtom's lifespan, you reap the rewards. If it dips, so does your potential payout.

Playing the Market: Shorts and Longs

This fluctuating yield makes yTokens perfect for market speculation. If you believe the future yield will be lower than the current yToken price, sell it (shorting). If you're bullish on yield, buy and hold (longing). It's like betting on the future performance of your asset's yield, without owning the asset itself.

So, how can you use yTokens in the real world?

Trading: Ride the yield waves, buying low and selling high based on your market predictions.
Arbitrage: Combine yTokens with their matching pTokens to reclaim the original cToken, profiting from price differences.
Earn variable yields: Hold yAtom to earn Atom yield at a fraction of the cost of Atom.

yTokens offer a new dimension to DeFi, allowing you to capitalize on yield volatility. Whether you're a seasoned trader or a yield enthusiast, yTokens offer a unique way to engage with and profit from the dynamic DeFi landscape.

Maturity: The Time Dimension of Pryzm's Yield Tokens

Maturity is a key concept when refracting cTokens on Pryzm. Essentially, it's the chosen lifespan of your pToken and yToken - ranging from months to years.

For pTokens, maturity is like a countdown to redemption. Once it hits zero, you can swap your pToken back for its equivalent value in the original cToken.
For yTokens, maturity is an expiration date for yield collection. Up until that date, you can claim your rewards. Once it passes, the yToken's yield-bearing power vanishes.

Shorter maturity yTokens may trade at a discount compared to their longer-duration siblings, as they represent a shorter window for earning yield. Similarly, shorter-term pTokens are seen as less risky due to their quicker redemption potential.

On the flip side, yTokens with longer maturities can command a premium due to their extended yield-earning period. pTokens with longer maturities, however, might be discounted due to the delayed return of your principal. It's a trade-off: longer lock-ups mean higher potential fixed yields, but also more uncertainty about the token's price when you finally redeem it.

Maturity isn't just a number, it's a strategic tool. By understanding the interplay between maturity, risk, and reward, you can tailor your yield strategies on Pryzm to match your investment goals and risk tolerance.

Liquid Governance

In the cross-chain liquid staking field, voting rights are often the price paid for liquidity and yield. Pryzm flips this script with Liquid Governance, giving users back their voice.

When your assets are bonded into a cToken on Pryzm, your voting power doesn't vanish. Instead, it gets channeled through both your cTokens and the pTokens derived from them. These tokens become your ballot, allowing you to vote on proposals mirrored from the original chain right on Pryzm's interface. Pryzm then gathers these votes and casts them on the origin chain, ensuring your voice is heard.

Leveraged Voting: Amplifying Your Influence

Pryzm takes it a step further with Leveraged Voting, a feature that lets you have a stronger voice in decisions than your actual holdings would suggest. This happens because not everyone votes on every issue, so there's leftover voting power, that amplifies the impact of engaged participants, ensuring that even with low voter turnout, decisions aren't dictated by a small group. It's democracy in action, made possible by the unique dynamics of Pryzm's tokenized yield system.

Imagine Pryzm has 100 ATOM staked, meaning 100 pATOM exist. If only 5 pATOM holders vote on something, they can use the unused 95 pATOM to boost their votes, acting as if they each had 20 pATOM instead of 1.

Liquid Governance on Pryzm is more than just a feature, it's a statement. It shows that you don't have to choose between earning yield and having a say in your investments. With Pryzm, you can have both, and your voice can be louder than ever.

Trading Markets

Pryzm is a one-stop decentralized platform for yield trading. With a variety of tools and features designed to streamline your investing experience, Pryzm empowers you to take control of your trades.

YAMM Swaps

Pryzm's Yield Automated Market Maker (YAMM) is the central hub for trading cTokens, pTokens, and yTokens. Each pool combines a cToken with all maturities of its corresponding pToken. The YAMM automatically manages the pools, removing expired maturities and adding new ones, so liquidity providers can sit back and relax.

Clever leverage parameters enhance liquidity at certain yield levels, allowing for larger trades with minimal price impact. This benefits both traders, who enjoy smoother transactions, and liquidity providers, who earn higher returns.

PulseTrade

With PulseTrade you are able to break trades into smaller chunks or set up recurring investments at regular intervals. This reduces the impact of market timing and price fluctuations, helping you achieve a more favorable average price. PulseTrade also lets you set price limits, ensuring your trades execute only at your desired levels. Want to capitalize on a sudden dip? Set a target price, and PulseTrade will automatically execute your remaining trade when the market hits your mark.

FlowTrade

For those less liquid assets, Pryzm offers FlowTrade. This auction-style market facilitates gradual token swaps over time, either continuously or at set intervals. It's a space for creators and subscribers to connect, where creators locking in their tokens for sale and subscribers bidding with their tokens. The beauty of FlowTrade is its dynamic pricing, where the quantity of subscribers' tokens directly influences the price of the creators' tokens. This ensures a fair and transparent marketplace for all participants.

To gain a deeper understanding of how Pryzm operates, we recommend watching this insightful video walkthrough of the PRYZM Web App, presented by Mr. Refractor. In this video, he provides a clear and engaging explanation of how pATOM, yATOM, and cATOM interact within the yield ecosystem. He also explores the practical aspects of trading, swapping, and providing liquidity for various assets on the platform. It's a valuable resource for anyone seeking to unlock the full potential of Pryzm's innovative yield optimization tools.

Exploring The Yield Ecosystem: Trading, Swapping & Providing Liquidity For The Assets! | Discord AMA

Pryzm Tokenomics

Pryzm is a community-driven network that puts its users at the forefront of its evolution. The centerpiece of this approach is native token PRYZM.

By holding and delegating PRYZM to validators, users earn staking rewards while also gaining voting rights on critical decisions that shape the network. These decisions range from adjusting network parameters to allocating funds and other key factors that influence the ecosystem's direction. This governance model encourages active participation and gives users a real stake in the future of Pryzm.

Diverse Revenue Streams

Pryzm's commitment to innovation extends to its revenue model, which goes beyond the usual reliance on gas fees. The platform has developed multiple revenue streams to ensure its sustainability and growth:

Yield from staked assets: By enabling the staking of tokens from various blockchains, Pryzm earns a share of the yield generated.
Swap fees on the DEX: Pryzm offers low-latency, high-liquidity trading, generating revenue through swap fees.
Maximal extractable value (MEV) capture: Pryzm uses a fair and transparent system to capture and distribute MEV, adding to its income.
Tax on restaked tokens: A small tax is applied to non-PRYZM tokens delegated to validators, providing another layer of revenue.

Pryzm’s tokenomics reflect its dedication to innovation, performance, and community governance. Through PRYZM, users are not just participants but active contributors to the network’s growth, benefiting from its diverse revenue streams.

Empowering Users Through Knowledge

The Pryzm team is deeply committed to creating a user-friendly environment, understanding that a strong community thrives on informed and engaged participants. To support this, they’re developing a comprehensive suite of educational resources, including detailed documentation, informative videos, and more, to help users confidently navigate the Pryzm ecosystem.

Pryzm provides step-by-step guides for essential platform functions like Liquid Staking, Providing Liquidity, and utilizing Principal & Yield Tokens. These guides simplify complex concepts into straightforward explanations, ensuring users can fully harness these powerful tools.

Get Started: This guide helps you with the basics, from connecting your wallet to depositing assets and exploring everything Pryzm has to offer.
Liquid Staking: Learn how to stake your assets on Pryzm while keeping them liquid, giving you opportunities for additional yield.
Providing Liquidity: Discover how to contribute to Pryzm's liquidity pools, where you can earn rewards while supporting the decentralized exchange.
Principal & Yield Tokens: Get a clear understanding of how these unique tokens work, allowing you to separate and trade the principal and yield tokens of your staked assets.

Beyond the official resources, the community has stepped up to enhance everyone’s understanding of Pryzm. The @RefractedIndex is a collaborative hub where users can share strategies and insights. This space empowers users to maximize their engagement with Pryzm, potentially boosting their profitability.

Proactive Risk Mitigation and Security Infrastructure

Pryzm prioritizes the security and stability of its liquidity providers (LPs) by deploying a comprehensive risk management framework. This framework incorporates Circuit Breakers, Pause Modes, and Recovery Mode, designed to mitigate extreme market volatility and unforeseen systemic risks.

Circuit Breakers: Acting as protective mechanisms within Pryzm's Automated Market Maker (AMM) pools, Circuit Breakers ensure token prices remain within predefined boundaries. They utilize upper and lower limits, alongside a reference LPT (Liquidity Provider Token) price, to establish a safe operational range. If prices deviate beyond these limits, transactions are temporarily halted, preventing extreme price fluctuations.

The system dynamically adjusts boundaries based on token weights, affording stricter control for tokens with higher weightage. By integrating circuit breaker validations into crucial operations like swaps and exits, Pryzm maintains continuous price stability within its AMM pools.

Pause Modes: Pryzm implements pause modes at both the pool and vault levels, enabling the temporary suspension of specific functionalities in emergency scenarios.

Pool Pause Mode: This mode allows pool owners or governance entities to suspend activities such as swaps, joins, and exits while preserving the ability for recovery exits.
Vault Pause Mode: Operating at the chain-level, this comprehensive pause mode disables pool interactions, swaps, and order execution.

These modes offer controlled shutdown mechanisms, facilitating rapid responses to potential threats or system errors.

Recovery Mode: Designed as a critical safety measure, Recovery Mode aids liquidity providers in navigating non-functional pool scenarios. Activated by governance, this mode deactivates protocol fees and enables proportional exits. This ensures LPs can securely retrieve their assets during critical situations.

Third-Party Audits: Further underscoring its commitment to security, Pryzm has undergone meticulous audits conducted by Certik and Oak Security. These audits reinforce the platform's dedication to providing a secure and reliable environment for its users.

Pryzm's proactive risk management approach exemplifies its dedication to safeguarding users and upholding a stable ecosystem for liquidity provision. By implementing these preventive measures and undergoing independent security audits, Pryzm fosters trust and confidence in its platform, making it a robust and dependable choice for participants in the decentralized finance space.

The Team Behind Pryzm

Pryzm is the creation of Refracted Labs, a team distinguished by its remarkable experience in both traditional finance and blockchain technology. The team includes experts who have sharpened their skills in fixed income and derivatives at top-tier investment banks like Goldman Sachs and JPMorgan. Others bring significant blockchain engineering know-how from their work at Terraform Labs, where they played key roles in building multibillion-dollar protocols. This rare blend of finance and blockchain expertise drives the team’s commitment to innovating in decentralized finance, especially in the yield sector.

Conclusion

Pryzm is shaking things up in the DeFi world by making yield management and tokenization more accessible and flexible than ever before. It’s a project that gives users real control over their investments, allowing them to split, trade, and optimize future yields in ways that most DeFi platforms can’t even come close to offering.

At its heart, Pryzm is about empowering users. Its tools are not for sitting and waiting for returns, but for management and shaping. Whether looking to increase your liquidity, cut risk, or become more active in governance, Pryzm facilitates all this and much more without locking you into a single rigid strategy.

What sets Pryzm apart is its broader vision. Built with the Cosmos SDK and IBC protocols, Pryzm doesn’t operate in isolation – it connects with other blockchains, allowing users to move assets across networks easily and maximize their investments. It’s like creating a dynamic marketplace for future yields, where people can trade and strategize, turning yield into a customizable asset.

In essence, Pryzm isn’t just another DeFi project – it’s bringing true innovation to the space, empowering users to take control of their financial future. It’s crafted for the forward-thinkers in DeFi who want more than just passive returns.

Resources

The information provided by DAIC, including but not limited to research, analysis, data, or other content, is offered solely for informational purposes and does not constitute investment advice, financial advice, trading advice, or any other type of advice. DAIC does not recommend the purchase, sale, or holding of any cryptocurrency or other investment.

Exploring Pryzm's Tech: The Future of Yield

Pryzm’s Yield Marketplace: Where Flexibility Meets Opportunity

Key Takeaways