Pryzm: A Layer-1 Blockchain for Yield Tokenization & Trading

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3 Mar 2024

The Future of Yield: How PRYZM Unlocks the Power of Yield

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TL;DR

Pryzm is a Layer 1 blockchain that specializes in yield. It allows users to customize their exposure by breaking tokens down into their core elements to allow users to optimise their exposure to yield, price, and governance. Pryzm offers a variety of DeFi tools to optimise users ability to participate and profit with these primitives, such as:

Yield tokenization: Turn your future yield into a tradable token
Fixed Yields & Discount Tokens: Lock in fixed yields & buy your favourite tokens at a discount
Liquid governance: Access and trade the governance power of any token from Pryzm’s chain
Liquid staking derivatives: Stake your tokens and get a liquid derivative in return
Specialized AMM: Trade tokens with low price impact and provide liquidity with high capital efficiency
Limit orders: Set your desired price and execute trades automatically
DCA & Time weighted trading tools: Swap tokens gradually to minimize price impact and smooth market volatility
Restaking: With only one token you can earn the native asset’s yield, swap fees, Pryzm chain revenue & Pryzm rewards

Pryzm enables yield trading for any asset from any chain, with permissionless and interoperable design. Pryzm is the one-stop platform for all your yield needs and preferences.

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Yield is a fundamental concept in finance, representing the return on an investment over time. Yield can vary depending on the type, duration, and risk of the investment, as well as the market conditions and expectations. Yield can also be volatile, fluctuating with supply and demand, interest rates, and other factors.
In decentralized finance (DeFi), yield is a key driver of innovation and growth, attracting users and capital to various platforms and protocols that offer attractive returns on staking, lending, borrowing, and trading. However, yield in DeFi also faces some challenges and limitations, such as:

Yield volatility: Yield can change rapidly and unpredictably, exposing users to market risks and uncertainties. Users may miss opportunities or incur losses due to yield fluctuations.
Yield lockup: Earning yield often requires assets to be locked up for a certain period, preventing users from accessing their capital and earnings. Users may have liquidity or cash flow issues due to yield lockup.
Yield governance: Yield is often tied to governance rights, giving users a say in the decision-making process of the platforms they stake on. However, some users may not want to participate in governance or may want to delegate or monetize their voting power.

To address these challenges and limitations, Pryzm introduces a novel solution that enables users to tokenize and trade their future yields. Pryzm is the first blockchain designed to empower users to isolate, tokenize, and monetize future yields. Pryzm is a multifaceted ecosystem that offers a variety of features and benefits, such as:

Liquid Staking Derivatives (LSDs) with voting powers: Users can stake their assets and earn yields while retaining their governance rights. Users can also delegate or sell their voting power to others, creating a market for governance power.
Tokenized future yields: Users can isolate and tokenize their future earnings from any yield-bearing asset. Users can then trade, hedge, or leverage their future yields on Pryzm’s Automated Market Makers (AMMs) or other platforms, creating a market for future yields.
Fixed yield tokens: Users can lock in a fixed yield for a specified period of time, creating a market for fixed yields. Users can also swap between fixed and variable yields depending on their risk preference, creating a market for yield swaps.

What is Pryzm?

Pryzm is a layer-1 blockchain that lets you tokenize and trade your future yields from any asset. Pryzm is built using the Cosmos SDK, which is a framework that enables a custom blockchain with bespoke logic and functionality. The Cosmos SDK is flexible, fast, and powerful. It also allows Pryzm to connect with other blockchains using the Inter-Blockchain Communication Protocol (IBC). Optimistic Execution enables Cosmos SDK chains to build blocks with ground-breaking velocity, pushing the limits of block times and efficiency. In internal testing block times are ~0.4seconds and Optimistic Execution is expected to be enabled after mainnet.

What assets could Pryzm tokenize yield on?

Pryzm is built to be permissionless, scalable, secure, and future-proof. We envisage a world where you can trade yield on any yield-bearing asset. Being built as an interconnected blockchain with an oracle that can report yields from anywhere makes this easy, and the pre-eminent bridging providers such as Axelar and Wormhole have also made their home as IBC connected Cosmos zones. Examples of assets where yield could be tokenised include:

Proof-of-Stake assets from IBC connected zones such as ATOM, TIA, INJ, DYDX, OSMO and more. There are many chains that will be instantly connected to Pryzm via IBC that have high market caps and high staking yields, making the Cosmos network a fertile ground for yield tokenization and trading.
Liquid Staking & Restaking Derivatives from external providers such as Lido and others.
Liquidity Provider Tokens where users could monetise, trade, or hedge often high and volatile yields and protocols. These are tokens that represent a share of a liquidity pool on a decentralised exchange, such as Uniswap or Osmosis, and generate fees from the trading activity and liquidity incentives.
Tokenised Real-World Assets with an income, such as government bonds, corporate bonds, and dividend yielding stocks & etfs. These are tokens that represent ownership or a fraction of a real-world asset that generates income.

What are the unique features of Pryzm?

Pryzm has developed specialized modules integrated into the blockchain, paving the way for revolutionary use cases, including:

A module to unlock and tokenize the future yield of your assets. You can isolate and trade your future earnings from any yield-bearing asset on Pryzm’s AMMs or other platforms.
A module to participate in liquid governance and give you leveraged voting powers. You can stake your assets and retain your governance rights. You could also delegate or sell your voting power to others, creating a market for governance power and earning you extra yield.
Modules that facilitate the decentralized exchange of assets, including a unique algorithm for trading yield and principal tokens. You can access a variety of trading tools on the PRYZM Decentralized Exchange (DEX), including a yield AMM, a multi-asset AMM, and an algorithm that allows you to split your trade into smaller parts to optimise price impact and smooth your average price.
An oracle module that reports in changes in yield and could be used for both blockchain assets and Real-World Assets (RWAs)

How does it work?

Pryzm creates and accepts liquid tokens that automatically compound their yield and separate it as it is paid. Pryzm can use tokens from other platforms, such as Lido, or create its own liquid staking derivatives. These derivatives are called “CTs” (collateral tokens) on Pryzm. For example, cATOM is a liquid staking derivative of ATOM that represents its staked value and accrued rewards. You can easily mint cATOM on Pryzm by depositing ATOM.
Pryzm allows you to trade the future yield of your assets, such as ATOM, TIA, INJ or OSMO. These assets are like trees that produce fruit over time. The fruit represents the interest or yield that you earn from staking your assets.
Pryzm lets you split your tree into two parts: the Principal Token (PT) and the Yield Token (YT). The PT is like the deed that proves you own the tree, which represents the original value of your asset. The YT is like a contract that grants you the exclusive right to harvest the fruit from the tree, which represents the future yield of your asset.
The PT and YT have fixed maturities, which means they have a specific date when they end. For example, a PT or YT with a maturity of one year will end after one year from the date it was created. The YT becomes worthless after it expires, because it no longer gives you the right to harvest any fruit from the tree. The PT can be redeemed for the original asset after it expires, because it still proves that you own the tree.
The maturity date affects the price of the tokens because it determines how much fruit you can expect to get from the tree and how risky it is to buy or sell the tokens. For example, a YT with a longer maturity will be more expensive than a YT with a shorter maturity, because it gives you the right to harvest fruit from the tree for a longer period. However, a YT with a longer maturity will also be more uncertain than a YT with a shorter maturity because you don’t know how much fruit the tree will produce in the future or how much the fruit will be worth in the future.
You can trade both PT and YT on Pryzm’s native Decentralised Exchange, which has been specially designed for yield trading. This gives you more flexibility and control over your yield and opportunities to make profits by buying the individual tokens. For example, you can:

Lock in a fixed yield for your asset by selling your YT and keeping your PT. This is like selling your contract to harvest the fruit for a fixed period and getting paid upfront, while still owning the deed to the tree.
Increase your yield exposure by buying more YT. This is like buying more contracts to harvest the fruit from other trees and expecting that the trees will produce more fruit than the market anticipates, which is reflected in the current price of the contracts. If the trees yield more fruit and the fruit value increases, you can make a profit.
Reduce your price exposure but still get yield by selling your PT and keeping your YT. This is like selling your deed to the tree and keeping the contract to harvest the fruit for yourself, so you don’t have to worry about the tree price going down in the future, but still enjoy the yield.
Own the tree in the future by buying a PT. This is like buying a deed to a tree at a discount because you only pay for the trunk and branches, not the fruit for the remaining period until maturity. At maturity, you will own the full tree and all its future fruit yield. This also gives you a guaranteed yield because you buy at a lower price than the current market value of the tree and its fruit.

Let’s look at an example using ATOM:

First, you deposit an asset that can earn income over time, such as ATOM. Pryzm then stakes that asset to start earning income and you get a token that represents your stake in the network, such as cATOM. Unlike a staked ATOM which is locked, cATOM is a liquid token and this token also lets you vote on the network’s decisions.
Second, you select the date until which you want to tokenize your income. You deposit cATOM and receive two tokens: one representing your income (yATOM) and another for your deposit (pATOM). For instance, if you deposit 1 ATOM and choose a one-year duration, you will receive a yATOM and a pATOM that both expire in one year. The yATOM grants you all the income generated from staking ATOM for that year, while the pATOM reimburses you with 1 ATOM equivalent in cATOM at the end of the year.
Third, you can trade or use these tokens in different ways. You can sell or buy your tokens on Pryzm’s Decentralized Exchange to take advantage of the market pricing of pATOM and yATOM. You can also swap between fixed and variable yields. You could use your pATOM to have amplified voting powers on ATOM governance matters.
Fourth, you can redeem the underlying assets by merging the same amount of yATOM and pATOM with the same maturity to get back cATOM. You can also burn cATOM to get back ATOM. Since these tokens are liquid, you can also swap them for the original asset on the DEX at any time. After maturity you can use just pATOM to reclaim the corresponding amount of cATOM.

What is yATOM?

Do you want to earn income from ATOM without buying or staking it? Meet yATOM, a token that lets you access the future yield of ATOM.

yATOM is a token that pays out the yield of ATOM until a certain date.
For example, if 1 staked ATOM yields 20% in a year, 1 yATOM, with a maturity date of 1 year from now, will pay out 0.2 ATOM in that year.
After the maturity date, yATOM becomes worthless, as it will have paid out all the yield.
The market decides the price of yATOM, based on the expected yield of ATOM and the time to maturity.
As ATOM yield can vary, so can the yield yATOM pays out. This makes it a variable yield token, meaning that the yield is not fixed or guaranteed.

How can you profit from yATOM?

You can buy yATOM for less than the yield it pays out and sell it for more, profiting from the price difference.

For example, if you buy 1 yATOM for 0.15 ATOM and sell it for 0.18 ATOM, you make a profit of 0.03 ATOM, plus the yield you have received from holding yATOM.
Another example is if you buy yATOM for less than 0.2 ATOM, and 1 ATOM yields 20% over the next year, which is 0.2 ATOM, then you will make a profit if you hold yATOM until maturity, as you will receive more ATOM than you spent.
You can also trade yATOM on PRYZM’s yield AMM or other platforms, speculating on changes in yield or market pricing of yield.
As has been seen on Ethereum, some protocols and chains may reward yATOM holders with airdrops or points, which can significantly increase users' potential returns and boost their earnings from airdrops and points.

What is pATOM?

Do you want to lock in a fixed yield from ATOM and have more voting power? Meet pATOM, a token that lets you do both.

pATOM is a token that gives you the right to redeem a corresponding amount of ATOM at maturity, which is paid in cATOM.
The market decides the price of pATOM.
For example, if pATOM with 1 year to maturity is trading at 80% of the price of ATOM, you can buy pATOM and expect a yield of 25%, because the 80% you spent now will be 100% in a year. This is like buying ATOM at a discount.
Therefore, pATOM can be thought of as a fixed yield token or a discount token.
pATOM can also be used to liquid vote on ATOM governance proposals, giving you more voting power than cATOM or ATOM per unit of value.

What are the use cases of pATOM?

You can use pATOM in diverse ways, such as:

Trade: You can buy pATOM when fixed yields are high and sell them when fixed yields move lower, profiting from the price difference.
Arbitrage: You can merge pATOM with the corresponding amount of yATOM to redeem cATOM, taking advantage of the price discrepancies between the tokens.
Earn Fixed Yields: You can hold pATOM to earn fixed yields and redeem cATOM at maturity, securing a guaranteed return.
Liquid Voting: You can use pATOM to participate in voting on underlying ATOM governance proposals, influencing the decisions of the network.
Provide Liquidity: You can provide liquidity to pATOM pools to earn underlying ATOM yields, swap fees, and liquidity rewards.

What is Liquid Governance and how can I get amplified voting power?

Liquid Governance is a form of decentralized governance that allows you to participate in the decision-making of the original blockchain where your staked assets belong. For example, if you stake ATOM tokens on Pryzm, you can still vote on the proposals of the Cosmos network. On Pryzm both CTs and PTs give you voting power. Liquid Voting is the mechanism that enables Liquid Governance on Pryzm. It works by mirroring the proposals from the original chain to Pryzm, where you can vote using your PTs. Your votes are then aggregated and sent back to the original chain, where they are counted as if you voted directly.
Leveraged voting power is a feature of Liquid Voting that allows you to vote with more weight than your actual share of assets. This is possible because not all PT holders may choose to vote on every proposal, leaving some voting power unused. For example, suppose Pryzm has 100 ATOM staked, which means there are 100 pATOM in circulation. If only 5 pATOM holders decide to vote on a proposal, they can use the remaining 95 pATOM as leverage and vote as if they had 20 pATOM each, instead of just 1. This way, they have more influence on the outcome of the vote, while still respecting the total voting power of Pryzm. This democratizes voting and prevents validators from having too much control over the decisions.

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Trading and Providing Liquidity on Pryzm

It is imperative to have tools that allow traders to access deep liquidity with low price impact and conversely for liquidity providers and market makers to achieve strong returns and high capital efficiency. As such Pryzm has developed bespoke trading tools that are a first-of-their kind to be built into the core of a blockchain.

YAMM: Yield Automated Market Maker (YAMM)

This is a type of DEX that caters to the unique requirements of principal and yield token trading. Each Yield Pool contains a cASSET and all maturities of pASSETs. The YAMM automatically removes expired maturities and adds in new maturities providing a passive experience for liquidity providers. The YAMM has leverage parameters that amplify liquidity in certain yield ranges to allow for larger trades with lower price impact and to generate more revenue for liquidity providers. Other advantages include:

Liquidity providers earn yield on 100% of the assets in the pool, as both cASSETs and pASSETs have an implied yield.
Liquidity providers don’t have to choose which maturity to provide liquidity for, as the AMM module automatically updates the related PTs in the respective pools. This means pool tokens are perpetual and auto compounding making them tax efficient in many jurisdictions.
Liquidity providers receive higher capital efficiency and liquidity is not fragmented for traders, as there is only one pool for each refractable asset. For example, there is only one ATOM yield pool which contains cATOM and all pATOM maturities.
Liquidity providers have reduced impermanent loss risk, as cASSETs and pASSETs are highly correlated.
yASSETs don’t require their own liquidity pool and instead are traded in the YAMM pool using a combination of flashloans and refracting. This means higher yields for liquidity providers as all yASSET trades also go through the YAMM pool

Weighted AMM: Weighted Automated Market Maker (WAMM)

This is a type of AMM pool that lets users create and join liquidity pools with different tokens and weights. It has the following advantages:

Users can customize their pools with more than two tokens and any weight they want, such as 80/20 or 60/20/20 pools.
For example, the PRYZM/USDC pool could be an 80:20 pool which means 80% of the value in the pool is PRYZM and 20% is USDC. This lowers impermanent loss for liquidity providers, provides deeper liquidity and allows for more efficient incentivisation. For more details on 80:20 pools see here
LSD providers often need to incentivise their pools as 50% of asset isn’t yield bearing, if they made 80:20 pools then only 20% of the asset would not be yield bearing and it would be more cost efficient to incentivise. For example, an 80:20 stETH;ETH pool earns more ETH yield than a 50:50 stETH:ETH pool.

Weighted cASSET pool example

PulseTrade

In DeFi trading, if there isn’t enough liquidity or if prices are unstable, your trade can significantly affect prices. You might want to spread out your trade if you’re not in a hurry, so you can get a smoother average price. Or, you might want to invest smaller amounts at regular intervals which is called Dollar-Cost Averaging (DCA).
PulseTrade offers a solution: you can break your trade into smaller portions or invest at regular intervals. This approach reduces the impact on prices and timing concerns. Once you’ve set your plan, the system handles the rest. Your order first tries to find a perfect match with other orders; any leftover trade is then swapped by the AMM. You only need to lock in funds for the next trade, ensuring cost-effective transactions, self-custody, and great flexibility. Users can specify a price limit for each portion of their trade and indicate a desired price at which they’d like the entire amount to be matched. For instance, a user might decide to exchange 1 USDC for ATOM every minute over 100 minutes, setting a top price of 10 USDC per ATOM. They could also stipulate that if the ATOM price drops below 7 USDC, they’d like to take advantage of the price dip and complete the remaining amount all at once. The blockchain automatically executes the trades so zero gas is paid by the users at each interval.

FlowTrade

Some token routes have low liquidity on an AMM. This can happen when liquidity is on a different chain, when a token is being launched, or when there is no easy AMM route from one token to another that has enough liquidity and low fees. For those kinds of trades, there is FlowTrade, which works like an auction where tokens are swapped gradually over time, either continuously every block or at fixed intervals. Users can bid and offer tokens to each other.
Creators are the people who make or own the tokens that they want to sell. Subscribers are the people who want to buy the tokens from the creators. Creators send their tokens to the subscribers, and subscribers send their tokens back to the creators. This is called a flow. The creators’ tokens are locked in the flow, which means they cannot be taken back or changed. The subscribers’ tokens are not locked, which means they can be increased or decreased at any time. The number of subscribers’ tokens in the flow affects the price of the creators’ tokens. The more subscribers’ tokens there are, the higher the price. The fewer subscribers’ tokens there are, the lower the price. This price change is the same for everyone in the flow, so no one gets an unfair advantage or disadvantage. Creators can also set a minimum price for their tokens, so they don’t lose money if the price drops too low.

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Restake your assets to earn extra yield

By restaking your Liquidity Pool Tokens tokens, which are backed by LSDs in the liquidity pool, you can secure the Pryzm blockchain and earn external yield and rewards. This yield comes from Pryzm block rewards and the chain revenue that Pryzm generates. Restaking is in addition to the internal yield that you get from swap fees and underlying LSD yield.
Restaking is facilitated in the background via the alliance module. The Pryzm governance will control (1) which assets can be restaked and (2) how much Pryzm rewards they will get. This could create a dynamic market, where different chains and protocols vie for Pryzm tokens, so they can influence the amount of Pryzm rewards allocated to their assets. This process, which has been termed “Governance Wars” on other chains, involves competing for the attention and support of Pryzm token holders.
Sources of yield for Restaked Pool Tokens using ATOM as an example

PRYZM: The Governance Token of the Pryzm Blockchain

Pryzm is more than just a blockchain — it is a community-driven network that gives its users a stake in its future.
The native token of Pryzm is PRYZM, which serves as the governance token of the network. By holding and delegating PRYZM to a Pryzm validator, users can earn staking rewards and participate in the decision-making process of the network. PRYZM holders can vote on network parameters, such as block size, inflation rate, and validator set size, through governance proposals. They can also direct the allocation of funds from the community pool and the Treasury, which are sources of funding for public goods and ecosystem development.
Unlike many other Layer 1 blockchains, Pryzm does not rely solely on gas fees for revenue. Pryzm has multiple revenue streams, thanks to its innovative features and products. These include:

A share of the underlying yield from the assets staked by Pryzm. Pryzm supports staking of various tokens from other blockchains, such as ATOM, INJ, OSMO, TIA, and more. Pryzm collects a portion of the yield generated by cASSETS (collateral tokens e.g. cATOM) and yASSETs (yield tokens e.g. yATOM).
Swap fees, which are charged for swapping tokens on Pryzm’s Decentralized Exchange (DEX). Pryzm’s DEX allows users to trade any token supported by Pryzm with low latency and high liquidity. Pryzm takes a small fee from each swap.
MEV (maximal extractable value), which is the value extracted by miners or validators from reordering or censoring transactions. Pryzm uses Skip Protocol’s Block SDK to implement a fair and transparent mechanism to capture and distribute MEV without compromising the security or the user experience of the network.
A tax rate on tokens other than PRYZM that are being restaked to secure the network. Pryzm charges a small tax on the tokens that are delegated to Pryzm validators, such as Yield Pool Tokens for ATOM, INJ, OSMO, TIA, etc. This is known as the “take rate”.

Pryzm is a blockchain platform that combines innovation, performance, and governance. By using PRYZM, the governance token of Pryzm, users can benefit from the network’s revenue streams and have a say in its future direction. Pryzm is not just a blockchain — it is a community.

How Pryzm Treasury Works

Pryzm Treasury Module collects and manages the revenue generated by the Pryzm network. The network’s revenue will consist of various tokens, most of which will generate yield and will also include LP tokens such that Pryzm has protocol owned liquidity. The Treasury is governed by PRYZM token holders who can choose to use these funds for different purposes, depending on the network’s needs and preferences.
The Treasury can:

hold the funds to preserve their value.
buy back and burn PRYZM tokens to reduce the supply and increase the scarcity of PRYZM.
buy back and distribute PRYZM tokens to the stakers, who are the loyal and long-term supporters of Pryzm.
buy back and send PRYZM tokens to the community pool, which is a source of funding for public goods and ecosystem development.

As mentioned, the Treasury Module will collect many non-PRYZM tokens. When Governance chooses an action that involves selling these tokens such as buyback and burn of PRYZM tokens, these tokens are sent to FlowTrade, which is a trading mechanism that works like an auction (see above). FlowTrade swaps these tokens gradually to PRYZM.

Who built Pryzm?

Pryzm is the result of Refracted Labs’ incubation and development. The Refracted Labs team has diverse backgrounds in various industries, from fixed income and derivatives at global investment banks, to leading engineering at protocols with 20bn TVL. The team is passionate about creating cutting-edge solutions for the yield sector of decentralised finance.

What’s next?

Pryzm will shortly be launching on mainnet. Stay tuned for more announcements! You can try out testnet here.
We hope you enjoyed this article. As we approach mainnet more articles will be published with further important details of the blockchain. For links to our socials and vital information please see info.pryzm.zone

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Disclaimer: This article is for informational and educational purposes only and does not constitute an offer or solicitation to purchase or sell any securities or tokens or to provide any investment advice or service. The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Pryzm or any of its affiliates. Pryzm and its affiliates are not responsible or liable for any information or statements made in this article. Readers are advised to do their own research and due diligence before making any decisions or investments based on the information or statements in this article.