Overview
mkUSD is the stablecoin issued by Prisma Finance, a Liquity-inspired lending protocol that accepts liquid staking tokens (LSTs) as collateral. Launched in late 2023, Prisma allows users to deposit stETH, cbETH, rETH, or sfrxETH as collateral and borrow mkUSD against these positions. The key innovation is that LST collateral continues earning Ethereum staking yield while simultaneously backing mkUSD borrowing.
Prisma launched with significant momentum, attracting hundreds of millions in TVL and high-profile backing from DeFi veterans. The protocol implemented a veToken model (vePRISMA) for governance and emission direction, creating a "Curve War"-style dynamic for mkUSD liquidity.
However, Prisma's trajectory was severely disrupted by a smart contract exploit in March 2024 that drained approximately $11.6 million in user funds. The incident was compounded by governance drama: the "white hat" who paused the contract demanded concessions, and the response revealed tensions within the protocol's governance structure. The combination of the exploit and governance controversy significantly damaged trust and adoption.
Peg Stability
mkUSD's peg has been inconsistent. During its early growth phase, strong demand maintained the peg near $1, but the exploit and subsequent loss of confidence led to periods of significant depegging. Post-incident, reduced liquidity and TVL have made the peg more fragile. The redemption mechanism (borrowed from Liquity) provides a theoretical floor, but requires sufficient protocol activity to function effectively.
Collateralization
The collateralization model is sound in theory — LSTs are overcollateralized at minimum 110% (Liquity-style), and the underlying staking yield means collateral value tends to appreciate over time. Multiple LST types provide collateral diversification. However, the exploit exposed that collateral safety depends on smart contract integrity, not just collateral ratios.
Security
Security is Prisma's critical weakness following the March 2024 exploit. The incident revealed vulnerabilities in the protocol's smart contracts that audits failed to catch. The post-exploit response — including the contentious interaction with the "white hat" rescuer and the multisig holder who was arrested — damaged confidence in the protocol's security practices and governance. While contracts have been patched and re-audited, the incident history creates lasting trust deficit.
Decentralization
Decentralization was compromised by the exploit response, which revealed significant centralization in emergency procedures and governance. The multisig structure and team control over critical functions became apparent during the crisis. The vePRISMA governance system exists but effective power remains concentrated among the core team and large token holders.
Adoption
Adoption peaked before the exploit, with significant TVL and trading volume. Post-exploit, TVL dropped dramatically, and many users withdrew their LST collateral. mkUSD's circulation and liquidity have declined substantially. Recovery has been slow, and the protocol competes with Liquity V2 and other LST lending platforms that don't carry the baggage of a security incident.
Risk Factors
- Exploit history: March 2024 exploit damaged trust and drained $11.6M
- Governance controversy: Post-exploit governance drama revealed structural issues
- Declining TVL: Significant capital outflow post-exploit
- Peg fragility: Reduced liquidity makes peg maintenance difficult
- Competition: Liquity V2, Gravita, and others offer LST-backed borrowing without the baggage
- Trust deficit: Security incident creates lasting reputational damage
Conclusion
mkUSD represented an elegant concept — combining Liquity's proven lending model with LST collateral that earns staking yield. The initial traction validated demand for LST-backed stablecoins.
The 4.1 score reflects the severe impact of the March 2024 exploit and governance controversy. The security incident exposed both technical vulnerabilities and governance weaknesses that fundamentally undermined the protocol's credibility. While the underlying concept remains valid (as evidenced by competitors pursuing similar models), Prisma/mkUSD's ability to recover from its damaged reputation is uncertain.