Authorize JPEG’d to Interact with Prisma Finance, utilize ETH/stETH to farm on Prisma Finance

Proposals
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Abstract

Prisma Finance is a new entrant in the Curve Wars of the liquid-staking derivate sector, offering high yield opportunities for ETH holders. JPEG’d DAO can benefit from this yielding opportunity by using some of its ETH to deposit on Prisma and farm in a nearly delta-neutral manner.

JPEG’d could use some the ETH in treasury to farm on Prisma.

Background

JPEG’d treasury is robust and partly sitting idle. Using Prisma finance would be a way to diversify the yield opportunities and increase the protocol’s revenues.

Prisma Finance is similar to Liquity, offering a stablecoin: mkUSD against Liquid Staking ETH tokens. Like Liquity it offers a stability pool, whose role is to provide the necessary liquidity to cover the debt from liquidated vaults.

Using a portion of the DAO’s treasury, the following farming strategy is suggested:

Farming Mechanism

  1. Convert ETH to wstETH (wrapped staked ETH)
  2. Create Prisma Vault and deposit wstETH as collateral
  3. Use wstETH collateral to mint mkUSD
  4. Deposit mkUSD into Stability Pool

The MCR (minimum collateral ratio) would be kept at a maximum of 200% at all times, giving a 50% drop buffer against liquidations.

Depending on market conditions it seems reasonable to believe this strategy will yield double digit APRs as seen below.

Prisma Strategy Yield Split ETH Value Yield Weighed Yields
stETH Collateral 1 3.50% 3.50%
mkUSD Value Borrowed in ETH 0.25 -2.00% -0.50%
Yield on Active Debt Position 0.25 12.00% 3.00%
0.5% mkUSD Mint Fees 0.00125 0.00% 0.00%
Value as ETH in mkUSD Stability Pool 0.24875 20.00% 4.98%
Total Yields Relative to stETH Deposit 10.98%

More Details about Prisma Finance:
App: Prisma Finance
Documentation: https://docs.prismafinance.com/

Specification

Allow the team to use up to 5k ETH to farm on Prisma Finance to generate yield for JPEG’d DAO using the strategy described above.

1 Like
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10.98% is a great yield, but this strategy is risky, as it puts complete faith in the wstETH oracle on Prisma. Any oracle issues could lead to a complete loss of funds from a liquidation.

If seeking higher yields for the treasury, JPEG’d should consider an option like OETH, that requires no leverage, management of a position, or liquidations. This past Monday OETH yield surpassed 17% APY. I recommend reading the OETH proposal posted to the JPEG’d forum 10 days ago: PIP-Treasury Yield Optimization

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Isn’t minting mkUSD extremely expensive w upfront fees, they are also considering increasing rates: [PIP-010] Debt IR Increase from 2% to 4% on all collaterals / Raise Redemption fee to 1% - DAO Proposals - Prisma Finance DAO

I think if we want to farm these pools we should create a good pUSD/mkUSD farm and protocol farm it? For the pUSD half we could do it AMO style. Tetra is an investor, perhaps there’s a way to do something more beneficial