SECTION 1: APPLICANT INFORMATION
Applicant Name: Crypwalk - Y2K Finance DAO
Project Name: Y2K Finance DAO
Y2K Finance is the leading protocol where anyone can underwrite or hedge against depeg risk on pegged assets (i.e. stablecoins, wrapped tokens, liquid staked tokens). Y2K has facilitated over 200M USD of deposit value and over 22M USD of payouts to users. By these metrics, Y2K is a sector leader for depeg risk insurance. By extension, this makes Arbitrum the only chain to offer effective insurance markets for depeg risks.
Team Members and Roles:
- Crypwalk: DAO contributor/BD
- Last Oracle: DAO contributor/PM
- 0xHarbs: DAO contributor/Engineer
- Bumzy: DAO contributor/BD
Project Links:
- Website - https://www.y2k.finance/
- Twitter - https://twitter.com/y2kfinance
- Discord - discord.gg/y2kfinance
- Github - Y2K Finance · GitHub
- Gitbook - Earthquake | Y2K Finance
- Medium - Y2K Finance – Medium
- Dune - https://dune.com/toubi/y2kpolicy
- Audits - Audits | Y2K Finance
Contact Information:
TG: @crypwalk87
Twitter: https://twitter.com/Crypwalk_240
Email: crypwalk@y2k.finance
Do you acknowledge that your team will be subject to a KYC requirement?: Yes
SECTION 2a: Team and Product Information
Team experience:
- Crypwalk - contributor at redacted and new order
- Last Oracle - contributor at Ocean
- Harbs - Hypotneuse Labs
- Bumzy - GoldenTree, InternDao
What novelty or innovation does your product bring to Arbitrum?
Earthquake is the first DeFi product that allows market participants the ability to robustly hedge or speculate on the risk of a particular pegged asset (or basket of pegged assets), deviating from their ‘fair implied market value’. We’re also expanding our product suite with Tsunami which will be the first smart contract system that can settle the outcome of any trade using any financial instrument. Allowing Arbitrum users to benefit from deeper liquidity on their trades, increased yields from improvements to liquidity aggregation.
In Jan 2024, Y2K has also expanded into providing Turbo Options, which are binary touch options for volatile assets. Due to touch options being extremely sensitive to minor price movements, Turbo Options provide extremely high capital efficiency for option buyers, and give extremely high premiums to compensate for the risks of the option underwriters. Y2K is the first DeFi venue to offer options trading for popular tokens in Arbitrum such as GMX and PENDLE, as well as one of the few places to get SOL options outside of Solana. With at least 40 more possible markets that could be turned into Turbo Option markets, Y2K will continue to deliver new markets for tokens from both within and beyond the Arbitrum ecosystem, making Y2K a valuable risk management and speculation tool for any asset with a price feed.
In Feb 2024, Y2K also launched Volatility Touch Options, which are a brand new way for users to get direct exposure to the volatility of BTC, ETH, and the Crypto-Volatility Index (CVI). This is Y2K expanding beyond markets based on asset prices. We believe there’s untapped potential in allowing users to take positions based on other financially relevant metrics besides just prices. Some other market categories currently under R&D are Touch Options for Ethereum gas prices, Crypto Market Caps, Revenues of DeFi Protocols, and whether a particular chain experiences a halting event.
Y2K is also the top protocol in terms of oracle integrations. Y2K works with oracles such as Chainlink, RedStone, Pyth, UMA, Umbrella, and DIA. Y2K actively lobbies oracle projects to spin up new pegged asset price feeds on Arbitrum, and is often the very first consumer of those feeds once they go live.
Earlier this year, Y2K also launched Strategy Vaults, a type of managed trading vault that allows a manager to take up positions on behalf of users. Right now, the vaults use simple strategies that have back-tested positively against historical outcomes. However, we’re in conversations with projects in the ML/AI space to co-develop strategies that are able to ingest more sources of data to come up with better trading strategies
Is your project composable with other projects on Arbitrum? If so, please explain:
Yes, our Vote Locking contracts allows arbitrum users to provide liquidity on Arbitrum native DEXes like Balancer and Camelot and then lock up that LP token to earn a revenue share from the protocol. We will also introduce strategy hooks before the incentivization period which will allow users to use the yield they’re earning from other arbitrum native protocols like GMX or Pendle to underwrite or buy premium positions in our pegged asset markets through our strategy vaults.
Do you have any comparable protocols within the Arbitrum ecosystem or other blockchains?
no
How do you measure and think about retention internally?
The relevant metrics we use to measure retention are weekly recurring deposit wallets. TVL, deposit Volume. Weekly Active users, weekly protocol fees.
Do you agree to remove team-controlled wallets from all milestone metrics AND exclude team-controlled wallets from any incentives included in your plan: yes
Did you utilize a grants consultant or other third party not named as a grantee to draft this proposal? no
SECTION 2b: PROTOCOL DETAILS
Is the protocol Native: Yes, Y2K is Arbitrum native.
On what other networks is the protocol deployed on?: None at this moment
What date did you deploy in Arbitrum?: Oct 28 2022 TXN: Arbitrum Transaction Hash (Txhash) Details | Arbiscan
Do you have a native token? Yes Y2K | Y2K Finance
Past Incentivization: What liquidity mining/incentive programs, if any, have you previously run? Please share results and dashboards, as applicable? Our Token was launched fairly through our IFO to incentivize initial usage of the vaults. From OCT 28th to Dec 23 we emitted 808,820 Y2k tokens which resulted in $ 419,947 in total fees for the protocol and $ 47,784,026 in TVL during that period.
Current Incentivization: How are you currently incentivizing your protocol?
We are incentivizing the protocol with Y2K tokens. Currently we emit 18750 tokens on a weekly basis or (11,500$ at the time of writing) to incentivize collateral and premium depositors in our Earthquake vaults. Currently 90% of our incentives go to premium depositors (those insuring themselves against a depeg) and 10% goes to collateral depositors insuring the depeg/knockout options. Here is a graphic of our cumulative emissions since the protocol’s inception.
https://dune.com/queries/1991576/3300736
Have you received a grant from the DAO, Foundation, or any Arbitrum ecosystem related program? No, we have never received a grant.
Protocol Performance:
Notable Stats
As Feb 26, 2024, Y2K has:
- Y2K holders: 2921
- Lifetime users: 3424
- TVL/Deposit volume since launch: $233,942,712.34
- Total paid out to users: $24,200,564,88
- Total Y2K token emissions: $605,865.02
- Total fees generated: $1,335,431.44
- Fees paid out to vlY2K holders: $632,028
Emissions to Fees Ratio = 2.15x.
This means that for every $1 in emissions spent, Y2K was able to generate $2.15 in fees
Emissions to deposits Ratio = 376x
This means that for every $1 in incentives on Y2K, it attracts $376 of deposits to take positions on Y2K markets.
Protocol Roadmap
We will expand our product suite with Tsunami, a smart contract system that can settle the outcome of any trade using any financial instrument. It is designed to be modular and composable, which will facilitate seamless integration with other protocols in the Arbitrum ecosystem. Tsunami will be able to host derivative instruments such as Binary Options, European Options, and Lookback Options. Besides Y2K creating markets on Tsunami, other projects could use Tsunami to create and host their own derivatives.
Audit History
Our contracts have been extensively audited by some of the leading security experts in the industry including, Code4rena, Halborn, Peckshield, Sherlock, and Verilog and battled tested on chain for over a year and a half. A complete list of audits and reports can be viewed in the “Audits” link at the top. Audits | Y2K Finance
Security Incidents: none
SECTION 3: GRANT INFORMATION
Requested Grant Size: 300,000 ARB tokens
Justification for the size of the grant
Based on the “Emissions to Deposits Ratio” meaning the dollar amount of TVL we received per dollar we emit over the last year our average emission efficiency is 74.58x (calculated in section below). Considering current ARB prices we extrapolate that a 300K ARB grant will be able to bring ~ 45M USD of total deposits, which is ~4M USD of deposits per week during the grant distribution period.
Assuming a 2$ price for ARB and 25,000 tokens emitted weekly.
25,000 ARB*2 = 50,000 USD emitted weekly
50,000*74.58= 3,729,000 USD in weekly deposits
3,729,000 USD* 12= 44,748,000 USD in total deposits during the incentive period.
However, this is likely an overestimate, as incentives do not scale deposits linearly.
https://dune.com/queries/3407267/5719086
A much more conservative emission efficiency estimate of 50x the grant incentives which would amount to 30M USD in total deposits and 2.5 M in weekly TVL using the calculations above.
- based on our protocol mechanics most of our current products only lock up user funds for a maximum of 1 week. Which is why total value deposited/total volume during the incentive period is our main KPI
Over the lifetime of our protocol our average weekly user count has been 176.98. Based on this figure we feel confident that we’ll be able to bring at least 150 weekly users to the platform during the incentive period or 1,800 total users.
https://dune.com/queries/3219673/5382691
Grant matching: none
Grant Breakdown: Direct Incentives to our suite of Arbitrum native products 300,000 - 100%
Incentives to Earthquake - 200,000
Incentives to Tsunami - 100,000
Total of 300,000
Funding Address/Treasury Address: 0x5c84CF4d91Dc0acDe638363ec804792bB2108258
Funding Address Characteristics: 3/7 Multisig
Contract Address: Earthquake 0x65c936f008BC34fE819bce9Fa5afD9dc2d49977f, Tsunami Address will be provided further on, considering the multiple distributions methods and the Research and Execution effort currently undergoing our V3/tsunami
SECTION 4: GRANT OBJECTIVES AND EXECUTION
Objectives
- Growing the liquidity on Y2K to make Arbitrum the best place to underwrite or hedge against depeg events, by facilitating 30 M USD + of transaction volume during the incentivizaiton period.
- Drive more user engagement and activity within the Arbitrum Ecosystem by bringing 1800 + users to the chain.
Execution Strategy
Y2K’s Earthquake, Turbo Options, Volatility Touch Options are already live products on Arbitrum. We have a straight-forward emissions distribution system in place, and 90% of incentives go to the option buyers, while 10% of incentives go to option underwriters. We have previously tested multiple incentive ratios for the two sides, and have found this 90/10 split to be most effective.
Given a target of 50:1 emissions to TVL ratio on weekly arbitrum incentives to our earthquake vaults assuming a 2.00 price for the ARB token.
16666.66 Arb tokens distributed weekly * 2.00 = 33333.33 USD in weekly emissions * 50 = 1.66 M USD weekly TVL.
We also target a 50:1 emissions to TVL ratio on weekly arbitrum incentives to our Y2K Eth Tsunami pool assuming a 2.00 price for the ARB token.
8333.33 Arb tokens distributed weekly * 2.00 = 16666.66 USD in weekly emissions * 50 = 833,333.33 USD weekly TVL.
Both of these weekly totals add up to ~ 2.5 M USD per week in TVL or ~30 million USD of total during the incentive period.
One important thing to note is that based on our protocol mechanics most of our current products only lock up user funds for a maximum of 1 week. Because of this we believe that total value deposited/total volume during the incentive period is a more appropriate performance measure of our protocol. This protocol design also inhibits whales from “gaming” the incentives because the minute they deposit into either side of our vaults they have their funds locked for the remainder of the epoch. This means they are obligated to participate by either hedging or underwriting risk in order to have access to incentives.
Y2K’s proposed Tsunami derivatives product is getting audited at time of submitting this grant, and it will be live by the time grants are distributed. Once live, the incentives will be distributed 20% to liquidity providers, while 80% is distributed to traders. For the liquidity providers, a simple emissions contract will be provided, and for the traders, Y2K will build a volume tracking tool and run the incentives as a trading competition. Here, we allocate a small portion of incentives to LPers, as these are necessary to quickly bootstrap liquidity for the platform. However, most of the incentives are allocated to traders in the form of a trading competition, which is a tried and true method of bootstrapping attention and volume to the platform, which will be the source of returns for the LPers in the long run. Should any extenuating circumstances delay the delivery of our Tsunami product beyond the grant distribution period all ARB tokens allocated to incentivizing it will be returned to the Arbitrum DAO.
Y2K’s strategy vaults will continue to onboard new Strategies provided by either the Y2K team or collaborating strategists in the ML/AI space. Earthquake incentives will also go to these users who interact with the product by using the Strategy vaults .
Additionally, Y2K protocol is currently upgrading its token locking mechanism. Right now, users may lock their Y2K/WETH LP token from whitelisted DEXes as vlY2K to receive a share of platform fees.
How will we incentivize “stickiness
We will add Y2K/ARB LP as one option for the vlY2K lockers, to incentivize “stickiness” by allowing ARB token holders to join the LP to earn part of the platform fees. This pool will be funded and incentivized using our treasury and funds and not the LTTIP incentives. Our Tsunami product will also have a Y2K ARB counterparty pool which we will incentivize from the treasury, this pool will be used to underwrite binary options and pegged asset markets on Tsunami.
KPIS
For the Weekly Options-style products currently on Y2K, the best performance indicators would be:
Average Deposit Volume Per Week
-
For Earthquake A successful outcome would be reaching 1.66 M USD TVL per week - 20,000,000 USD in total volume during the incentive period.
-
For Tsunami a successful outcome would be reaching 833,333.33 USD TVL per week - 10,000,000 in total trading volume during the incentive period.
Average Protocol Revenue Per Week
-
For Earthquake A successful outcome will be 83,000 USD in fees per week. Through our fee mechanism we are targeting a 5% fee on weekly TVL .05*1.66 M USD = 83333.3
-
A successful outcome would be reaching 41,666.65 USD per week from the Tsunami. we are targeting a 5% fee on our Y2K ETH pool .05*833,333.33 = 41666.65
-
Both products combined 150 weekly active users 1800 total users during the incentive period.
Grant Timeline and Milestones
Earthquake
-
Week 3 of incentives : 50,000 Arb tokens emitted - 5,000,000 USD in deposit volume (1,250,000 USD in avg weekly TVL)
-
Week 6 of incentives : 100,000 Arb tokens emitted - 10,000,000 USD in deposit volume (1,250,000 USD in avg weekly TVL)
-
Week 9 of incentives : 150,000 Arb tokens emitted - 15,000,000 USD in deposit volume
(1,250,000 USD in avg weekly TVL)
- Week 12 of incentives : 200,000 Arb tokens emitted - 20,000,000 USD in deposit volume
(1,250,000 USD in avg weekly TVL)
Tsunami
- Week 3 of incentives : 25,000 Arb tokens emitted - 2,500,000 USD in deposit volume
(833,333.33 in avg weekly TVL)
- Week 6 of incentives : 50,000 Arb tokens emitted - 5,000,000 USD in deposit volume
(833,333.33 in avg weekly TVL)
- Week 9 of incentives : 75,000 Arb tokens emitted - 7,500,000 USD in deposit volume
(833,333.33 in avg weekly TVL)
- Week 12 of incentives : 100,000 Arb tokens emitted - 10,000,000 USD in deposit volume
(833,333.33 in avg weekly TVL)
How will receiving a grant enable you to foster growth or innovation within the Arbitrum ecosystem?
Y2K’s success as the leading depeg insurance market also makes Arbitrum the best location to hedge against depeg risk events. The portion of the grant going to Earthquake will ensure Y2K’s depeg markets have deep liquidity for users to take up positions. Allowing arbitrum users to experiment with pegged assets on arbitrum while hedging their portfolio. It also provides a venue where ARB token holders can earn yield while underwriting these positions in our Y2K ARB counterpool on Tsunami.
Y2K’s continued innovation in developing new market types and categories will attract the most adventurous DeFi power-users to Arbitrum to gain access to these market types.
Do you accept the funding of your grant streamed linearly for the duration of your grant proposal, and that the multisig holds the power to halt your stream? Yes
SECTION 5: Data and Reporting
Is your team prepared to comply with OBL’s data requirements for the entire life of the program and three months following and then handoff to the Arbitrum DAO? Are there any special requests/considerations that should be considered?
Yes we are prepared to comply. No, there aren’t any special requests that should be considered.
Does your team agree to provide bi-weekly program updates on the Arbitrum Forum thread that reference your OBL dashboard? [Please describe your strategy and capabilities for data/reporting] Yes
Does your team agree to provide a final closeout report not later than two weeks from the ending date of your program? Yes
Does your team acknowledge that failure to comply with any of the above requests can result in the halting of the program’s funding stream?
Yes