Adding and Removing Collaterals

Introduction

Prisma design allows for the inclusion of a variety of collateral types. These collaterals can be added or removed via a governance vote. This page provides an overview of how collaterals can be added, how they can be removed (a process referred to as sunsetting), and the implications for the Stability Pool. Note than any new collateral need to go through a Risk Report by the independent Prisma Risk Team before any vote proposal.

Adding Collaterals

Collaterals can be added to the Prisma protocol through a proposal and voting process. If the majority of the governance token holders agree, a new collateral type can be added. Once a new collateral type is added, it can be used to secure loans and participate in other system functionalities. The interest rate, loan-to-value ratio, and other parameters for each collateral type are set by governance.

Implementation

A new collateral is added by calling the function deployNewInstance on the Factory contract. A collateral type cannot be added more than once. Upon execution of the aforementioned function the following actions are performed:

1. A new Account Manager and Sorted Accounts are deployed

2. The collateral is allowed into the Stability Pool, Borrower Operations, Liquidation Manager and mkUSD contracts

3. Initial parameters for that collateral are set within the protocol

Sunsetting Collaterals

Sometimes, it may become necessary to remove a collateral type from the Prisma protocol. This process is known as sunsetting a collateral. Sunsetting is initiated via a governance vote and has several implications:

1. Collateral Handoff: When a collateral type is being sunset, collateral handoff from Account Manager to the corresponding stability Pool (SP) for any liquidation is disabled. Instead, only redistribution of collateral and debt among vaults for the same collateral type is allowed.

2. Interest Rate Adjustment: The interest rate for the sunset collateral is increased to 50% APR. This high interest rate is intended to incentivize the repayment of loans backed by the sunset collateral.

3. Redemption Fees: The redemption fees for the sunset collateral are removed. This makes it more attractive for users to redeem mkUSD/ULTRA against that collateral.

4. New Loans: The creation of new loans backed by the sunset collateral is disabled. This helps to gradually phase out the use of the sunset collateral.

Stability Pool Implications

The stability pools plays a critical role in maintaining the stability of the Prisma system. During the sunsetting of a collateral, certain rules apply to the stability pool:

1. Collateral Withdrawals: Withdrawals for the sunset collateral from the corresponding stability pool are halted and all balances cleared 180 days after the initiation of the sunsetting process.

2. Collateral Index Reuse: After the sunset period has ended, the collateral index used to identify a collateral in the stability pool can be reused.