Incubation Thesis: Y2K Finance

The Rise of Stablecoins

Blockchain tech has gone through many waves of adoption. However, the majority of use cases focus on speculation rather than working toward a more decentralized, global financial system. In fact, it is often the volatility of cryptocurrencies that shy away those that need them most.

If we’re to build a modern financial system on a blockchain, there needs to be decentralized and stable currencies that act as a medium of exchange.

Stablecoins serve this purpose by maintaining a stable price relative to the asset they’re pegged to. We’ve seen every experiment from fiat-backed stablecoins, to collateral-backed stablecoins, to algorithmic stablecoins. There are many types, but they all share the common goal of being a stable currency for users to shield themselves from volatility.

Currently sitting at a market cap of $154B, stablecoins are a massive success and are here to stay.

Growing Pains

That said, contrary to the premise of stablecoins, many tend to suffer from a variety of issues. They experience peg volatility, liquidity issues, embedded centralization risk, and more.

Each stablecoin makes tradeoffs and the perfect solution does not yet exist. As with any exploratory process, we have seen many experiments go wrong as we navigate this relatively new concept.

Most recently, a > $40B collapse of Terra and its stablecoin UST has left an unerasable stain on our industry.

A month before UST, the stablecoin BEAN reached prices close to $0 after a governance hack drained its protocol funds — shrinking its market cap from $100M to $110k.

Again, the list goes on. Stablecoins are a long way from being ideal for participants and users need a way to protect themselves and hedge against these issues.

Enter Y2K Finance

Y2K Finance is the newest incubated project from New Order. It is a suite of products designed for exotic peg derivatives that will allow participants to hedge or speculate on the risk of a particular pegged asset (or basket of pegged assets), deviating from their ‘fair implied market value’.

The protocol brings three main products to the table:

Earthquake

This flagship Y2K structured product leverages a variant of the ERC-4626 standard for the creation of fully-collateralized insurance vaults. Users can use these vaults to hedge, speculate and underwrite the volatility risk associated with various pegged assets. Token holders are rewarded from trading fees derived from this marketplace.

Tsunami

Tsunami is a Collateralized Debt Obligation (CDO) powered lending market for pegged assets with MEV-proof liquidations.

Wildfire

Wildfire is an on-chain RFQ orderbook where users can trade Y2K risk tokens amongst themselves, both unlocking ample liquidity and allowing for rapid repricing of semi-fungible tokens.

In other words, Y2K Finance offers a fully transparent, on-chain insurance solution for users, DAOs, and more looking to hedge against their pegged asset positions. Y2K also further promotes decentralization by making these markets accessible for all participants and by providing instant and guaranteed payouts via Chainlink oracles.

We believe that Y2K brings a new set of tools to DeFi that will allow users to better manage their stablecoin risk. We plan to launch Y2K on Arbitrum in the near future and are excited about its potential.

To keep up with Y2K follow them on Twitter. We also encourage users to experiment with their testnet implementation here.

If building edge-of-the-edge DeFi products interests you, get involved with New Order today. We’re always looking for talent.