Prisma Wars and “DropLock” - Cryptovestor's Alpha Corner #6

Nov 7, 2023
Prisma Wars and “DropLock” - Cryptovestor's Alpha Corner #6

This is one of the most exciting weeks for Frax and no one is even talking about it. The reason I think this is the case is because it has more to do with Frax’s good buddies, Convex Finance and Prisma Finance.

You see a few weeks ago Prisma Finance launched, attracting over 350m in TVL in just 2 days. A lot of that TVL came in without any token incentives, but then the Prisma token launched and It turns out that Prisma has been working with Convex Finance for months to develop a liquid locker for vePrisma.

But Convex had a little trick up its sleeve, how do they lock the majority of Prisma tokens is one gulp! They used greed and the bear market to incentivize locks. To keep this simple, in order to claim your airdrop you had 2 choices, you could claim it as locked vePrisma, and wait 52 weeks, or you could opt for a liquid version of cvxPrisma and get all of your drop at once and stake it on Convex for 200%+ APY. Naturally most people chose to claim the liquid version. But there’s a catch, if you claim your drop as cvxPrisma, you are in essence auto locking your vePrisma voting power with Convex. Something I call “droplock”. The act of using an airdrop to incentivize locks into Convex.  At the time of writing, Convex has over 55% of all circulating Prisma voting power. Vote power that will be used to do a variety of cool things!

Here is tweet from @Tetranode showing what will be voted on for Prisma very soon. FEE SWITCH. Did I mention Prisma base fees were already voted on to be raised from 1% to 2%? Click here to view the post.

With this voting power, Convex can vote on governance and direct $62m worth of Prisma emissions just like it does with Curve. Where do these emissions go?? Well of course any LSD vault on Prisma’s platform can be chosen. But there is something else, something much more sinister and under the radar that no one is talking about, emissions can be sent to staked Curve LP’s or individual Curve pools!!!! That’s the big piece of alpha no one is picking up on! Basically, Convex can decide to send emissions to any Curve pool staked on the Prisma Platform!

Why is this important for Frax you ask? Well let’s dive deeper. At launch Prisma saw astronomical APY’s for minting mkUSD their native stablecoin. All of the Prisma vaults had relatively high apy’s (500%+). So how does this help Frax?

Frax owns a considerable amount of locked CVX and that CVX now has voting power over those Prisma emissions.  As an example, let’s say Frax and Convex work closely together and decide to vote for the sfrxETH vault on the Prisma Platform? What would happen?

The sfrxETH vault APY would hit 50+% maybe more depending on the price of Prisma! What does this mean? Well, it means you earn 50% APY if you use sfrxETH on Prisma to mint mkUSD. So what Vestor? Well at that point Prisma is paying you to take the loan out and this is besides what you earn with native staking yields with sfrxETH which already has the highest APY among all LSDs!

What happens next? More sfrxETH is minted and deposited into Prisma. mkUSD supply increases. Where does this mkUSD go? Into a curve pool with crvUSD and maybe Frax, where it earns another 10%? This increases crvUSD demand and reduces borrow rates for crvUSD, organically crating a supply sink. SfrxETH supply skyrockets, more fees to Frax veFXS, veCRV fees shoot up, and Prisma Fees as well. All creating a giant Flywheel and the start of what I think will be the Prisma Wars!

You see, other LSDs will be caught off-guard, Lido, Rocketpool, Coinbase along with other smaller players will have to buy CVX to vote for emissions to compete with frxETH’s staggering growth. And this does not even include what can be done with Curve Pools. LSD’s buy CVX, CVX price goes up, as a result bribes go up, Curve fees up, so CRV price increases, FXS price up as fees increase and CR gap narrows! You get it anon??

Other notable LSD’s that will likely be joining the Prisma wars are players that already own a lot of Convex. Players like Redacted Cartel’s PxETH, Origins OETH and Clever’s ClevEth.

This Is just a taste of what’s to come, but I believe that Prisma will be the spark that ignites DeFi madness again and we all have a front row seat to it all!

I leave you with these screen shots for the week.


Cheers Anon

Follow me @Cryptovestor77 on X for 24/7 Alpha on the Curve and Frax Ecosystems.

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