How to Bet on Stablecoin Collapse: Y2K Finance

A Unique DeFi Protocol on Arbitrum

This research memo is for educational purposes only and not an inducement to invest in any asset. Subscribe to Blockcrunch VIP to receive in-depth project analysis, interactive token models and exclusive AMAs from our research team - all for the price of a coffee ☕ a day.

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One of the primary roles of the financial market is its ability to transfer risk and facilitate the efficient allocation of these risks. And yet, in the world of DeFi, there remains a massive void in users' capability to effectively hedge against de-pegging risks of stablecoins and pegged assets. 

In this memo, we take a look at how Y2K Finance is seeking to fill this gap by serving as a marketplace of insurance buyers and sellers. By the end of the memo, we will illustrate why Y2K may be one of the best platforms for users to bet against the collapse of stablecoins, particularly in light of recent SEC actions against Paxos, the issuer behind BUSD.

Overview

Y2K Finance is a DeFi protocol on Arbitrum which provides a suite of products for the hedging and speculation of pegged asset risk, specifically in exotic peg derivatives. With Y2K, users have the ability to manage the potential deviation of stablecoins (USDT, FRAX, DAI, MIM), liquid staking derivatives (stETH, frxETH) or other wrapped assets (wBTC) from their expected market value. 

Pegged assets dominate a large portion of the cryptocurrency market. The total value of the stablecoin market is over $140Bn, representing 14% of the entire cryptocurrency market cap. ETH LSDs on the other hand is a market worth over $10Bn. These pegged assets underpin the entire DeFi ecosystem. 

Nonetheless, anyone who has been in crypto for a while right now should understand the stability of pegged assets cannot be taken at face value. From the TerraUSD collapse to accusations and concerns about Tether’s collateral backing, Fear, uncertainty and doubts about asset depegging waxes and wanes, but are never truly gone. 

In this article, we will explore how Y2K Finance provides an avenue for users to hedge and speculate depeg risk:

1. Primer of catastrophe bonds in traditional finance

2. Explanation of Earthquake, Y2K’s main product

3. Usage and adoption of Y2K Finance

4. $Y2K tokenomics

5. Catalysts Ahead

6. Risks