[PIP-034] Pause protocol fee distribution to vePRISMA holders

DAO Proposals
1

Author: Frank Olson
Date: March 21th, 2024

Summary

Upon passing of this proposal the following changes will occur within the Prisma Protocol:

Pause protocol fee distribution until further notice.

Motivation

Recently Prisma has been the victim of an exploit related to the migration zap contract, please read our post-mortem. As a precautionary measure, the protocol has been temporarily paused until further notice while we communicate with the exploiter to return funds to users.

Given the current state of affairs wherein the protocol is not generating any fees due to the pause in its operations, this proposal proposes a temporary suspension of the distribution of protocol fees to vePRISMA holders.

Next Steps

A snapshot will be scheduled to formalize consensus. Given the circumstances no on-chain vote will be held, upon approval, we will pause the fees to vePRISMA holders.

Vote

https://snapshot.prismafinance.com/#/proposal/0xed60612273c30970ab7bae6d0210ee90c895f2a0516098fd897343e8e14096e2

1 Like
2

I disagree with this proposal.

We still have over 2 million mkUSD and almost 200,000 ULTRA in the fee receiver address → https://etherscan.io/address/0xfdCE0267803C6a0D209D3721d2f01Fd618e9CBF8

Why should we stop the distribution?

In the past weeks, we distributed less than what was the actual revenue to create an extra buffer of fees to be used in moments like this one.

Fee distribution is a key mechanism for keeping the Prisma token valuation high. If we stop it, the price of Prisma will continue to fall.

With the 2 million mkUSD, we could still continue the fee distribution for 10 weeks, and I hope the protocol will be restored well before then.

If we stop the revenue share now, I really don’t get why in the past weeks we didn’t share the 100% of the fees captured by the dApp.

2 Likes
3

I understand the difficult situation, and it’s clear that there are no winners in this scenario. However, I believe that halting the distribution of fees for an indefinite period could harm the potential for eventual compensation.

Under the assumption that the hacker does not return the funds, we face a significant shortfall of approximately $11 million that needs to be covered. The only feasible methods to secure this $11 million for compensation involve either attracting external investors to cover the losses, or continuing to generate protocol revenue as the protocol itself is still working fine (not mutually exclusive by the way).

Pausing the distribution of revenue undermines one of the main reasons for generating revenue in the first place. The protocol is heavily designed around these emissions and distributions, and removing the yield could lead to a further decrease in TVL and revenue as the token will be less attractive, exacerbated by a loss of reputation and confidence. This could make repayment even more challenging.

I can only assume there’s a desire to pause revenue distribution so there’s time to come up with a proper solution for the on-going situation. However, for this to be for an indefinite period could do more harm than good.

A quick alternative I can think of is not to pause revenue distribution completely, but to potentially decrease the existing cap of circa $160k/week. This will keep the ‘flywheel’ intact, but also signals the PRISMA token and system itself will keep functioning and be worthwhile while at the same time not ‘piss away’ potential fees required for compensation.

Alas, these are my 2 cents, it’s a shitty situation and we’ll have to pick our poison.

1 Like
4

Thanks @Alunara,

The proposal does say, “this proposal proposes a temporary suspension of the distribution of protocol fees to vePRISMA holders.”

By no means was this an indefinite proposal, the spirit was “until there is a resolution”.

2 Likes