Thread by @michael_lwy

1/ With the recent depeg of @Platypusdefi's $USP and FUD around $BUSD, I dived deep into @y2kfinance, a DeFi protocol on @arbitrum. A thread on the protocol mechanism and the $Y2K token 🧵

https://twitter.com/mrjasonchoi/status/1625902538376757248

2/ One of the roles of financial markets is to transfer risk and allocate it efficiently. But there's a gap in the DeFi world when it comes to hedging against stablecoin de-pegging risks.

3/ Y2K Finance is a protocol on #Arbitrum providing avenue for hedging and speculating on pegged asset risks. Users can manage potential deviation of stablecoins, liquid staking derivatives (#LSD), or other wrapped assets from their expected value.

4/ Y2K's Earthquake vaults build on the idea of catastrophe bonds in traditional finance, applying it to a de-peg event for stablecoins and other derivative products in #DeFi. #Y2K doesn't issue insurance products or directly underwrite them, but serves as a facilitator.

5/ Users can use Hedge and Risk Vaults in the Earthquake Module to manage pegged asset risks. 'Hedgers' deposit $ETH as an insurance premium to protect against volatility, while 'Riskoors' underwrite the depeg insurance by depositing $ETH in the Risk Vault.

6/ In case of a depeg event, the Hedgers receive a share of the Risk Vault, while Riskoors receive a portion of the premiums from the Hedge Vault. The vaults' target asset, strike price, epoch, and deposit amount determine their characteristics.

7/ Here's a simple illustration of the protocol's mechanisms:

8/ Since launch in November last year, Y2K has facilitated about 51,000 $ETH (~$80M) in its Earthquake vaults. 95% of the users deposit into the Risk vault, betting that the assets will not depeg.

9/ The protocol collects a 5% fee on the payouts at the end of each epoch. In three months’ time, the protocol has earned about $500K.
dune.com/toubi/y2k

10/ Tokenomics: The $Y2K token is used for governing the Y2K ecosystem and setting key parameters. $vlY2K (vote locked Y2K) holders are entitled to 50% of the fees generated.

11/ To obtain $vlY2K, one must provide liquidity to the Y2K-ETH @Balancer pool. This LP token can then be locked for 16 or 32 weeks and is non-transferable. Supplying liquidity in the Balancer pool and locking it for $vlY2K also allows users to increase their governaning power.

12/ In the future, $vlY2K holders are not just getting a slice of the protocol fee, but they'll also have a hand in guiding liquidity mining emissions through a gauge system. This will open up a bribe economy similar to the Curve War.

13/end. For more information on its valuation compared to other Arbitrum protocols, catalysts ahead and potential risks, you can read the full article on @theBlockcrunch.

blockcrunch.substack.com/p/how-to-bet-o…