New Vaults Parameters

Context

Given recent market developments, including Bitcoin reaching all-time highs, there is a significant potential for market euphoria. This led to increased demand for debt minting and subsequently put pressure on reserves and the peg for our stablecoins.

Observing actions taken by prominent actors in our space, such as Maker which recently raised their interest rates and adjusted other parameters to fight this new pressure, it's evident that other protocols have been charging high fees for weeks without observing a significant impact on their usage. The prevailing global sentiment in the current market still favours debt minting, with users demonstrating a willingness to pay more for access to a stable and resilient stablecoin that aligns with their strategies.

Given the relatively high volatility and interest rates in the crypto market at present, Prisma must adapt. With [PIP-031], the DAO is implementing necessary measures to address these challenges, focusing on restoring the peg and fortifying our position within the market.

Change of Vault parameters

Given the challenges facing the mkUSD peg, urgent measures by the DAO to bolster interest rates substantially and adjust mint fees on capped tranches to enhance Prisma's competitiveness within the broader ecosystem were necessary. Likewise, ULTRA's peg faces similar difficulties, prompting our action to elevate the interest rate to 20%.

Past experiences have demonstrated that adjusting these parameters significantly aids in restoring the peg and reducing redemptions. We have two levers at our disposal: the Interest Rate (IR) and the Mint Fee. By increasing one or both of these levers, we can influence the utilization of the vault and the borrowing amount of mkUSD/ULTRA, all while continuing to generate fees for the DAO.

Now that [PIP-031] has been enacted, here are the new vault parameters:

Source: https://gov.prismafinance.com/t/pip-031-update-parameters-of-all-mkusd-and-ultra-collaterals/150

Impact for users

We acknowledge that these adjustments may appear drastic. However, we firmly believe they are justified given the current market dynamics and the potential benefits they offer to the peg and vault owners in the long run.

The substantial PRISMA emission helps offset the increased borrowing costs, granting users access to a more robust stablecoin, liquidity, and greater yield opportunities. Aligning Prisma with current market conditions is crucial to remain competitive with other CDPs.

Each iteration introduced to Vaults brings valuable insights, enabling us to improve the protocol and reinforce our position in the space. In the coming weeks, we will present significant proposals, all geared towards our shared objective: establishing a stronger and more widely adopted stablecoins issuer protocol.

Join the Prisma Community

To get involved and stay up to date:

• Visit the website:  Prismafinance.com

• Read through the  documentation

• Meet the community on  Discord

• Follow  @PrismaFi  on Twitter