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Mechanics
Positions in Earthquake are defined as an ETH deposit in one of two types of vaults:
- Hedge vaults
- Risk vaults
A user can ‘purchase’ insurance on a de-peg event on any of our supported assets by depositing ETH to the corresponding Hedge 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 Risk vault. These Users also mint an ERC-1155 Y2K token representing their position in the vault.
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 epochs, and the first 7 days of the Monthly epochs. 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.
Note that for the first epoch of the IFO the deposit period will be 7 days, starting on October 31 and ending on November 7th. All epochs thereafter will follow the deposit schedule outlined above
Users who are seeking to get exposure to the depeg risk market, would deposit in the Risk vaults, acting as an underwriter of depeg insurance. Depositors collect a pro-rata share of the premiums from the Hedge vault deposits, while creating a market for depeg protection for the Hedge vault.
Upon depositing into the Risk 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_hedge/risk_strike_epoch
The token needs to be staked to be eligible for the IFO rewards, un-staked tokens will not be accumulating rewards.
Scenarios:
- Vault does not depeg
- Risk vault depositors receive a pro-rata share of Hedge vault deposits (premiums)
- Vault depegs
- Risk vault depositors receive a pro-rata share of Hedge vault deposits (premiums)
- Risk vault depositors transfer their principal to Hedge vault depositors
Users who are seeking to Hedge against volatility in pegged assets would deposit in the Hedge vaults. Their deposit acts as an insurance premium that entitles them to a pro-rata share of the Risk vault deposits upon a depeg event.
Upon depositing into the Hedge 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_hedge/risk_strike_epoch
The token needs to be staked to be eligible for the IFO rewards, un-staked tokens will not be accumulating rewards.
Scenarios:
- Vault does not depeg
- Hedge vault depositors transfer their paid up premiums to the Risk vault depositors
- Vault does depeg
- Hedge vault depositors transfer their paid up premiums to the Risk vault depositors
- Hedge vault depositors receive a pro-rata share of Risk vault deposits
Chainlink oracles are used to monitor pegged asset prices for each vault. The following are the feeds that will be used:
When the Chainlink oracle 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 Risk vault deposits to the Hedge vault.
The protocol collects a 5% fee in the following scenarios:
- 5% of Hedge Vault deposits
- 5% of Risk Vault deposits upon a depeg event
- no fee is charged if peg is maintained
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 a monthly or weekly premium to maintain the hedge.
Scenario where the strike price is not reached(no depeg)
Scenario when the strike price is reached (depeg)
Last modified 4mo ago