Meet Y2K Finance: Protection from stablecoin risks

Introduction

Y2K Finance is a DeFi platform that operates on Arbitrum, providing users the opportunity to speculate or hedge against the depeg of stablecoins and token wrappers (WBTC, STETH). The platform offers greater flexibility and options for managing risk and providing liquidity in the insurance market, enabling traders and depositors to hedge or underwrite positions. Y2K Finance is a New Order incubated project, which is a DAO that focuses on building projects from the ground up.

Y2K Finance currently has 2 products live with a third being released in 2023. Earthquake and Wildfire are their current products. Earthquake vaults redefine a core traditional Financial product, catastrophe bonds (CAT), while applying the primitive to a native DeFi setting. Wildfire is the secondary market place 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.

Y2K Finance, with its innovative products and strategic approach, stands out as innovative DeFi Product. By delving into its offerings, tokenomics, and the traction it has achieved, we aim to understand its significance. This article serves as a guide, highlighting the platform's potential.

Structured Products for a Secure DeFi Future

Y2K Finance is a forward-thinking protocol that zeroes in on structured products tailored for exotic peg derivatives. Through these innovative products, market participants have the flexibility to either hedge against or speculate on the potential risk of pegged assets deviating from their perceived market value. At the heart of Y2K Finance are three standout products:

The Earthquake is a unique product that harnesses the ERC-4626 standard to craft fully-collateralized insurance vaults. These vaults serve as a platform for users to navigate the volatility risk tied to various pegged assets, be it through hedging, speculating, or underwriting. Additionally, token holders stand to gain from the trading fees amassed in this marketplace. Then there's the Tsunami, a cutting-edge on-chain derivative. It functions as a Collateralized Debt Obligation (CDO) driven lending market for pegged assets, fortified with MEV-proof liquidations. Lastly, Wildfire carves out a niche for itself by offering a bustling secondary market dedicated to the trading of tokenized risk. This on-chain RFQ orderbook facilitates the trading of Y2K risk tokens, ensuring both liquidity and the swift repricing of semi-fungible tokens in an ever-changing market.

A significant concern that Y2K Finance addresses head-on is the mispricing risk that shadows pegged assets. The team behind Y2K Finance is steadfast in their belief that the influence of stablecoins and similar pegged assets will only amplify in the future. To put it simply, think of Y2K Finance as a safety kit for your favorite toy that you're afraid might break. This kit offers various tools to ensure your toy remains intact, predict if it might break, or even swap parts with other similar toys.

It's not just individual users who will find value in Y2K Finance. Protocols and DAOs in the crypto realm will also gravitate towards it, seeking protection from the inherent risks of pegged assets.

A New Order DAO Incubated Project

Y2K Finance is a New Order incubated project, which is a DAO that focuses on building projects from the ground up. New Order is behind some big projects such as H20, Frogs Anonymous, and Redacted. New Order has received 10% of the total $Y2K supply

Y2K Finance has strategically partnered with several entities to enhance its offerings in the DeFi space. One of their partners is Balancer. Another significant collaboration is with Chainlink. Y2K utilises Chainlink Oracles for defining Earthquake Vaults' strike prices & reading live market data for depeg events. Delorean is also listed as a partner, Delorean exchange enables users to buy & sell the yield generated from exchanges. Delorean exchange is enabling users to hedge against underlying assets' depeg for GLP & jGLP using a fraction of the generated yield. Lastly, Sturdy, Sturdy is a DeFi lending protocol that offers high yield deposits and interest-free loans. Sturdy Finance and Y2K are partnering to offer peg insurance for stablecoin LP collateral through a Y2K referral link. Together, these partners contribute to Y2K Finance's ecosystem, ranging from data provision to facilitating borrowing and lending operations in the DeFi sector.

Y2K Finance's Earthquake and Wildfire

Y2K Finance has two innovative products live, Earthquake and Wildfire, to address the volatility risks associated with pegged assets in the DeFi space.

Earthquake is a structured product that allows users to hedge, speculate, and underwrite the volatility risk of various pegged assets. By depositing $ETH, users can take positions in fully collateralized insurance vaults, leveraging a variant of the ERC 4626 token standard. The payouts are calculated based on various variables. Without a depegging event, buyers pay a premium and receive nothing, while sellers benefit from the premiums. However, if a depegging event occurs, buyers get a payout, and sellers contribute to that payout. For example, if Alice deposits 1 ETH in an Earthquake vault and receives a Vault Token, she can set a price to take profits. Bob can then either enter a position at the current market price or set his desired entry price. Bob, as the taker, covers the gas fees for the trade execution. At the epoch's conclusion, Bob can redeem his Vault tokens for the underlying asset plus any yield or coverage. Y2K Finance also provides insurance markets for various stablecoin protocols, assigning three strikes to each stablecoin based on their risk levels. These strikes come with associated rates, indicating the likelihood of the strike being breached within a set timeframe.

On the other hand, Wildfire serves as a secondary marketplace for Earthquake's tokenized vaults. Since the collateral in Earthquake vaults remains locked for the vault cycle's duration, Wildfire offers a platform for users to enter and exit positions in real-time. Trades on Wildfire are executed using signed transactions from the taker and are finalized on-chain through 0x Protocols contracts, ensuring a smooth trading experience. For instance, if Alice deposits 1 ETH in an Earthquake vault and gets a Vault Token, she can list her desired profit-taking price on Wildfire. Bob can then either make market orders or set his entry price. Bob, as the taker, handles the gas fees for the trade. At the end of the epoch, he can redeem his Vault tokens for the underlying asset and any additional yield or coverage.

Tokenomics and Traction

The platform's native token, $Y2K, plays a role in governance. It empowers holders to propose and vote on protocol changes and upgrades. Beyond governance, $Y2K is also a tool to incentivize liquidity providers and other active participants. With a capped supply of 10,000,000 tokens, its distribution is strategically spread across various sectors, such as liquidity mining, team and advisors, and ecosystem growth.

Another aspect of Y2K's tokenomics is the vLY2K token, which stands for "vested Liquid Y2K." This token signifies a future claim on $Y2K tokens. When users deposit their $Y2K into a vesting contract, they receive vLY2K tokens. As time progresses, these can be redeemed for $Y2K on a one-to-one basis, with a vesting period of one year.

The token distribution has been carefully planned to bolster the platform's long-term growth and sustainability. 40% is allocated for liquidity mining, 20% each for the team and advisors and ecosystem growth, and the remaining 20% is split between the treasury and community partnerships.

The traction Y2K Finance has achieved, especially on the Arbitrum Mainnet, is commendable. The platform boasts a total deposit volume of $133 million across 31 markets. Through its Earthquake product, it has disbursed payouts totaling $14 million. In terms of rewards, the platform has distributed over $600,000. Furthermore, it has generated over $700,000 in fees

Final Thoughts

It's evident that Y2K Finance is not just another application in the DeFi space. Instead its crafting solutions to address the challenges of pegged assets. With its innovative products like Earthquake and Wildfire, Y2K Finance offers both individual users and DAOs a robust toolkit to navigate the often turbulent waters of the DeFi world. The impressive traction it has garnered, speaks volumes about its potential and the trust it has instilled among its users. As the DeFi ecosystem continues to evolve, Y2K Finance is poised to play a big role in shaping the future of insurance.