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Market Design

PRISM uses constant-product AMMs to provide liquidity for tranche tokens.

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AMM Structure

Each tranche token can trade against USDC. 
x * y = k
Where:
  • x is the tranche token reserve.
  • y is the USDC reserve.
  • k is the invariant.
When a user swaps into the pool, reserves update and price changes according to the invariant.

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Liquidity

Pools are seeded with:
  • USDC.
  • The corresponding tranche token.
Fees accrue to liquidity providers. In the early demo implementation, liquidity may be admin-seeded so the market can be shown clearly without relying on external LP participation.

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Price Discovery

AMM price is a live expression of trader behavior. Traders may buy or sell based on:
  • Current NAV.
  • Expected future yield.
  • Expected future defaults.
  • Relative safety of tranche primeity.
  • Liquidity and slippage.

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Market Reaction After Default

After a default, NAV changes first through deterministic accounting. Then traders can react. Example:
  1. Alpha is wiped.
  2. Core NAV falls.
  3. Prime NAV may remain protected.
  4. AMM traders sell junior tranches.
  5. Market prices move below or above NAV depending on expectations.
This is the key distinction between a static dashboard and a live credit market.