Mind Your Ps and Ys
Make your case for the relative value of pLUNA or yLUNA! Define the key inputs to the relative valuation for each; various methods of valuation (discounted flows, comparables, growth-based models) will be accepted as long as you make a reasonable case for them and
Prism's refracts
Valentine's day is for couples who are two people bonded as one, Prism protocol was launched on the 14th of February 2022 with the intention of using its refracting ability to break the love of Luna and separate it into two parts, named pLuna(the Principal part) and yLuna(the juicy yield). While pLuna is the component with governance/voting, yLuna was very popular in the early days as pLuna has no utility and yLuna has some sweet staking opportunities. However, pLuna + yLuna is always equal to Luna (cLuna but cLuna = Luna). Let's see how yLuna/pLuna value changed on daily basis since its inception.
Above is a plot of yLuna/pLuna price
- We can see that the ratio was almost 1 at the beginning. which suggests it started as both tokens having the same price.
- But quickly yLuna price went up but in order to maintain the peg with Luna, pLuna price has to go down.
- We can see a gradual uptrend in yLuna/pLuna ratio and reached 8.3 on 8th of March.
- However, pLuna has regained a bit of ground on 11th and decreased the ratio to 3-4 range. Incidentally, March 11th was the day Nexus boosted prism farm was launched.
That's what we see from data, what about the future? Assuming the current trends let's model the future directions for yLuna/pLuna ratio.
For this model we have used Geometric Brownian Motion and the code for that can be found here
Okay, this is beautiful just like PRISM refracting light :) this is a simulation of 1000 random incidents for 1 year based on the last yLuna/pLuna ratio and the volatility of yLuna/pLuna ration (standard deviation of the log-returns)
- Here is the mean(average) of all the 1000 simulations above.
- According to the simulation we don't see yLuna losing its dominance soon.
- Its dominance drops a little bit in July-August but then it will find new highs thereafter.
However
This simulation has no knowledge about many other external factors that could change the entire picture.
- When pLuna has utility, and/or staking/voting opportunities, that could help pLuna to close the gap
- If Luna price is volatile and people want to sell their Luna positions they may need pLuna to get their Luna back by burning both y and pLunas together in a 1:1 ratio.
- Staking rewards may help gain more dominance for yLuna. These are not addressed by simulation and just assume the existing pattern.