Mechanics
Types of Vaults
Positions in Earthquake are defined as an ETH deposit in one of two types of vaults:
Premium vaults
Collateral vaults
A user can ‘purchase’ insurance on a de-peg event on any of our supported assets by depositing ETH to the corresponding Premium 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 Collateral vault. These Users also mint an ERC-1155 Y2K token representing their position in the vault.
User Flows
Deposit Period
Users can deposit into Y2K vaults during the deposit period of the epoch. After the deposit, funds are locked for the duration of the epoch. The deposit period spans over the first 2 days of the Weekly epoch period. Note that depeg protection is only initiated after the deposit period ends. If a depeg event happens during the deposit period the vault will not strike.
Collateral Deposit
Users who are seeking to get exposure to the depeg risk market, would deposit in the Collateral vaults, acting as an underwriter of depeg insurance. Depositors collect a pro-rata share of the premiums from the Premium vault deposits, while creating a market for depeg protection for the Premium vault.
Upon depositing into the Collateral 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.
The ERC-1155 will be presented in the following format: y2k_token_premium/collateral_strike_epoch
Scenarios:
Vault does not depeg
Collateral vault depositors receive a pro-rata share of Premium vault deposits (premiums)
Vault depegs
Collateral vault depositors receive a pro-rata share of Premium vault deposits (premiums)
Collateral vault depositors transfer their principal to Premium vault depositors
Premium Deposit
Users who are seeking to Hedge against volatility in pegged assets would deposit in the Premium vaults. Their deposit acts as an insurance premium that entitles them to a pro-rata share of the Collateral vault deposits upon a depeg event.
Upon depositing into the Premium 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.
The ERC-1155 will be presented in the following format: y2k_token_premium/collateral_strike_epoch
Scenarios:
Vault does not depeg
Premium vault depositors transfer their paid up premiums to the Collateral vault depositors
Vault does depeg
Premium vault depositors transfer their paid up premiums to the Collateral vault depositors
Premium vault depositors receive a pro-rata share of Collateral vault deposits
Carousel:
Rollovers
Users now have the freedom to opt-in any part of their deposit to roll into the next epoch and can adjust their rollover amount or opt-out before the previous epoch ends.
Note that rollovers happen at the first block of the new deposit period.
Deposit Queue
Users are able to deposit into a queue anytime without waiting for deposit windows. Keepers empty this queue each time a new epoch's deposit window opens, securing the position of queue depositors.
Note that once a position enters a queue it cannot be withdrawn until the next epoch is resolved.
Oracle
Chainlink, Pyth and Umbrella oracles are used to monitor pegged assets price of the Earthquake vaults. The following are the feeds that are used:
Pyth Network Oracles
Umbrella Network Oracles
When the oracles indicates that the strike price for a given vault has been hit, the epoch will end and vault will be closed. This will initiate a transfer of Collateral vault deposits to the Premium vault.
Protocol Fee
The protocol collects a 5% fee in the following scenarios:
5% of Premium Vault deposits
50% allocated to vlY2K
50% allocated to Y2K Treasury
5% of Collateral Vault deposits upon a depeg event
50% allocated to vlY2K
50% allocated to Y2K Treasury
Example
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 weekly premium to maintain the hedge.
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