DeFi Revelations - Changing the Yield Trading Game with Pryzm

In this episode of DeFi Revelations which took place on June 26, 2024, Kirk from Revelo Intel hosted Olly from Refracted Labs to discuss Pryzm and its innovative approach to yield tokenization, trading in DeFi, and more! Read our notes below to learn more.

Background

Kirk (Host) – Head of Business Development at Revelo Intel

Olly (Guest) – Founder of Refracted Labs (the company behind Pryzm)

Pryzm – a Layer-1 application-specific chain (appchain) dedicated to transforming yield management

Pryzm: Innovating Yield Trading and App Chains in DeFi

Olly says that he focuses on long-term views and is very bullish on crypto and DeFi. He mentions that he avoids short-term trading due to his lack of skill in that area and the anxiety it causes.
Olly explains that he has a background in fixed income and derivatives, having worked at JP Morgan and Goldman Sachs. He started paying more attention to crypto in 2020 when he noticed real cash flows from staking tokens. This realization led him to explore the space further, especially in the areas of borrowing and lending protocols.
Olly discusses his interest in creating products that could manage the volatility of yields in DeFi. In 2021, he began thinking about creating a way to trade yield and reached out to blockchain developers for assistance.
In 2022, Olly launched a prototype of yield trading on the Terra blockchain, which initially saw success with a TVL of 800-900 million. However, the Terra blockchain implosion in May 2022 forced them to reassess their approach.
Despite the setback, Olly and his team decided to rebuild and create the product they envisioned, leading to the development of Pryzm as an appchain. This approach allows them to use core blockchain logic rather than being constrained by smart contracts. The project has been in development since 2022 and aims to launch with several unique features.

Enhancing DeFi with Pryzm’s Sovereign Blockchain

Kirk asks Olly about the limitations of smart contracts and how Pryzm is addressing these issues while maintaining the core ethos of DeFi and blockchain.
Olly explains that from a user perspective, the process remains similar as users will still sign transactions in their wallets, which will then be processed by the validators. However, Pryzm’s blockchain will allow for more features, such as automating actions without requiring additional signed messages. This increases functionality without adding friction for the user.
Olly highlights that their first iteration on another blockchain restricted them to the assets available on that blockchain. They couldn’t bridge assets, send assets to other blockchains, or collect yield from other blockchains. This limitation capped their scalability and potential use cases.
By controlling their own blockchain, Pryzm can cater to a broader range of assets, including real-world assets. This enables trading yield on government bonds, rental properties, crops, etc. Pryzm’s blockchain can also implement KYC and AML checks as needed, allowing for compliance in trading certain assets.
Olly highlights the importance of vertical integration. By controlling their entire stack, Pryzm avoids issues like gas spikes or network downtime on other blockchains, which can disrupt their app. This integration also reduces costs by eliminating rent-seeking intermediaries, ensuring that profits go directly to token holders.

Pryzm’s Strategic Approach to Tokenization and Market Entry

Kirk says that Pryzm’s model is built for both the present and the future, particularly in the context of tokenization. He asks about the go-to-market strategy and how Pryzm plans to access various assets to create a compelling user experience.
Olly explains that Pryzm’s blockchain is built using the Cosmos SDK, connecting them to other blockchains like Injective, Cosmos Hub ($ATOM), Celestia, Osmosis, and more. He highlights that these assets often have higher staking yields, which can be monetized through Pryzm. Additionally, Pryzm can bridge assets from other chains via providers like Axelar and Wormhole, allowing users to trade yield on a wide range of assets.
Olly says that Pryzm will enable users to tokenize their yield-bearing assets and swap them for other types of yield. For example, users can bring $ATOM as collateral, tokenize the expected yield, and swap it for $ETH yield, maintaining their $ATOM price exposure while earning $ETH yield.
Kirk asks about the mechanism Pryzm uses for yield swaps, comparing it to Pendle’s AMM model. Olly explains that Pryzm has a dedicated AMM for yield products, featuring multi-asset pools similar to Balancer. This setup increases capital efficiency and reduces the need for manual liquidity management.
Olly also mentions that Pryzm’s blockchain includes a Time-Weighted Average Price (TWAP) and Dollar-Cost Averaging (DCA) module, allowing users to spread out large trades over time to minimize price impact. Additionally, Pryzm offers a gradual auction mechanism called “flow trade,” enabling users to set limit prices and execute trades smoothly.

Pryzm’s Strategic Approach to Enhancing Trade Execution and Governance in DeFi

Kirk highlights the importance of being able to execute large trades with minimal slippage, especially for larger firms and institutional investors. He points out that the AMM model has limitations due to slippage and the need for deep liquidity, and he appreciates that Pryzm is considering these factors in their design.
Olly agrees and highlights the importance of creating tools that are easy and user-friendly for retail investors while also providing liquidity and expert-level tools for larger institutions. Pryzm aims to achieve this balance by building a scalable product that works for both highly liquid assets and smaller, more niche assets.
Kirk then asks about the customizability of maturity periods for yield swaps on Pryzm, comparing it to other AMMs that offer specific maturity periods. Olly explains that Pryzm will offer a range of maturities, similar to how yield curves work in traditional finance. Governance will decide on the number of maturities per year and the duration, allowing flexibility for different assets. This setup will enable users to trade yield on a variety of assets with different maturity periods, catering to both short-term and long-term needs.
Olly explains that $PRYZM holders control the listing of assets, governance parameters, and revenue distribution. All revenue generated by the blockchain, including gas fees, MEV revenue, yield shares, and transaction fees, goes into a treasury module. $PRYZM holders can then decide how to use this revenue, whether to buy back and burn tokens, distribute it as dividends, or reinvest in the community pool.
Olly announces that Pryzm will produce its first-ever blockchain block this week, marking a significant milestone. Following this, there will be a power user phase for testing and ensuring everything works perfectly. Pryzm will then launch a points campaign to reward early users and encourage exploration of the platform’s capabilities. Additionally, there will be fun community events involving meme coins and NFTs.

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Show Information

Medium: YouTube (Video)

Show: Revelo Intel – DeFi Revelations

Show Title: Changing the Yield Trading Game with Pryzm – The Ultimate Appchain for Yield Tokenization & More!

Show Date: June 26, 2024