Deep Dive: Y2K Finance
GM Miners!
Today, we're going to do a deep dive into one of our portfolio companies: Y2K Finance!
Website: https://www.y2k.finance/
Medium: https://medium.com/@Y2KFinance
Gitbook: https://y2k-finance.gitbook.io/y2k-finance/
What is Y2K Finance?
“Y2K Finance is a suite of structured products designed for exotic peg derivatives, that will allow market participants the ability to robustly hedge or speculate on the risk of a particular pegged asset (or basket of pegged assets), deviating from their ‘fair implied market value’.” - Y2K's GitBook Overview
What is their USP?
Y2K is the first to offer structured products, through which market participants can hedge against or speculate on the risk of different pegged assets.
Pegged assets are any derivative assets that have their underlying value anchored to an external asset at a 1:1 ratio.
Unfortunately, stablecoins still face liquidity, volatility, and security risks despite their purpose as a shield from market volatility. Depegs happen more often than most people think. And they can be catastrophic (or an opportunity, depending on how you see it).
Take the past event when $MIM and $USDT de-pegged. In this case, users were able to hedge against this via the use of Y2K Finance - one famous example was where DigitsDao walked away with 213 ETH through the use of Y2K: (https://twitter.com/WinterSoldierxz/status/1613228010488107008).
What products do they currently have?
Product: Earthquake
How does it work?
“Earthquake vaults redefine a core traditional Financial product, catastrophe bonds (CAT) while applying the primitive to a native DeFi setting.
A CAT bond is an instrument that pays the issuer when a predefined disaster risk is realized, such as a hurricane or an earthquake. Earthquake uses the CAT bond concept but applies it to a de-peg event for stablecoins, liquid wrappers, and other derivative products in DeFi.
Users can hedge against these assets de-pegging by depositing ETH collateral into the Hedge vault and receiving Y2K tokens (Vault Tokens) in return.
Initially, users can hedge against FRAX, USDC, USDT, MIM, and DAI de-pegging with weekly and monthly time periods. More assets will be supported in the future.” - Y2K's GitBook Earthquake
Types of vaults
“Positions in Earthquake are defined as an ETH deposit in one of two types of vaults: hedge vaults, or risk vaults.
A user can ‘purchase’ insurance on a de-peg event on any of our supported assets by depositing ETH to the corresponding Hedge vault. The deposit would mint an ERC-1155 Y2K token representing their position in the vault.
Conversely, users can sell insurance by depositing ETH in the Risk vault. These Users also mint an ERC-1155 Y2K token representing their position in the vault.”- Y2K's GitBook Earthquake Mechanics
Risk Deposits vs. Hedge Deposits
Risk Deposits
“Users who are seeking to get exposure to the de-peg risk market would deposit in the Risk vaults, acting as an underwriter of de-peg insurance. Depositors collect a pro-rata share of the premiums from the Hedge vault deposits, while creating a market for de-peg protection for the Hedge vault.
Upon depositing into the Risk vault an ERC-1155 token will be issued as a semi-fungible receipt of the deposit. The vault token will be tradable upon Wildfire launch.
Scenarios:
Vault does not de-peg
- Risk vault depositors receive a pro-rata share of Hedge vault deposits (premiums)
Vault de-pegs
- Risk vault depositors receive a pro-rata share of Hedge vault deposits (premiums)
- Risk vault depositors transfer their principal to Hedge vault depositors
Hedge Deposits
Users who are seeking to Hedge against volatility in pegged assets would deposit in the Hedge vaults. Their deposit acts as an insurance premium that entitles them to a pro-rata share of the Risk vault deposits upon a de-peg event.
Upon depositing into the Hedge vault an ERC-1155 token will be issued as a semi-fungible deposit receipt. The vault token will be tradable upon Wildfire launch.
Scenarios:
Vault does not de-peg
- Hedge vault depositors transfer their paid-up premiums to the Risk vault depositors
Vault does de-peg
- Hedge vault depositors transfer their paid-up premiums to the Risk vault depositors
- Hedge vault depositors receive a pro-rata share of Risk vault deposits” - GitBook Earthquake Mechanics
Protocol Fees
The protocol collects a 5% fee in the following scenarios:
- 5% of Hedge Vault deposits
- 5% of Risk Vault deposits upon a de-peg event (no fee is charged if the peg is maintained)
Examples
“Consider the following example using $MIM:
A user or DAO who holds the majority of their risk-off portfolio in MIM can set aside some ETH to purchase a hedge against their MIM exposure. Users pay a monthly or weekly premium to maintain the hedge.
Product: Wildfire (Coming Soon)
How does it work?
“Wildfire is the secondary marketplace that builds on top of Earthquakes' tokenized vaults. Since collateral is locked up for the duration of the vault cycle, this secondary market allows users to enter and exit positions in real-time via its order book.
Trades are made using signed transactions from the taker and pushed on-chain when finalized by the taker via 0x Protocols contracts. These are battle-tested contracts that Y2K will leverage to give users the best trading experience.” - GitBook Wildfire
Product: Tsunami (Will be revealed by the protocol soon)
Product: LSD Vaults (Will be revealed by the protocol soon)
Do they have any competitors? How do they operate differently?
The known competitors are as below where you purchase insurance on the number of assets that you would like to cover, similar to Real World Assets (RWA):
- InsurAce
- Nexus Mutual
- inSure DeFi
What it covers:
- Protocol hacks
- ETH staking cover
- Yield token cover
- Custody cover
Similar to RWA, the payouts only happen AFTER the event.
Whereas, Y2K payouts happen DURING the event.
How do they fit into this cycle’s narrative?
Stablecoin valuation has reached a record high with participation from institutions well as retail.
However, de-pegs can happen at times of extreme volatility (FTX, Luna, FOMC). Users want protection to hedge or bet against during these time frames.
This is where Y2K comes in by offering a suite of products for users to speculate or protect their pegged assets.
Y2K's Performance:
- Y2K Price $3.69 (current) up 369% since launch
How to Earn Fees with Y2K
- Hedge
- Bet on volatility in the stablecoin market
- Lock $Y2K through a Balancer LP - this entitles holders to 50% revenue share from the fees collected on vault deposits.
And that’s it - feel free to follow Y2K on their social media and join their community to learn more!
