<aside> 💡 For the full litepaper please view Cork Protocol Litepaper and to access our dapp please visit our website at cork.tech
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Cork is the risk pricing protocol accelerating onchain credit. Pegged assets such as liquid (re)staking tokens and stablecoins are a form of onchain credit, which attempt to maintain a 1:1 value with a base asset such as USD or Ether. These assets are widely used in decentralized finance but can result in potential losses due to the asset depegging due to liquidity shocks or black swan events. Cork aims to address this by allowing market participants to hedge or trade their pegged asset risks through a new financial primitive, the Depeg Swap. Below is an overview of the key mechanisms making this possible.
The protocol operates around two main assets: Redemption Asset - the base asset used for redemptions Pegged Asset - tracks the Redemption Asset's price (such as stEth)
The Peg Stability Module has a Deposit Mechanism where the Redemption Asset is sent to a contract and split into Cover Tokens and Depeg Swaps representing the two sides of the trade. The Cover Token represent the underwriter of the risk and will receive all the assets in the Peg Stability Module at expiry. The Depeg Swap is a swap token that allows a user to exchange their Pegged Asset 1:1 for the Redemption Asset through the Redemption Mechanism. The Depeg Swap represents the pricing of the risk of a Pegged Asset and can be used to hedge, speculate and be composably integrated in DeFi.
To earn a yield, Redemption Asset can be deposited into the Liquidity Vault, where it will be used to provide liquidity to an AMM, mint and sell Depeg Swaps as well as collect fees from the entire system. Effectively the underwriter of the risk receives a yield both from premiums as well as trading fees, which has the net effect of lowering the cost to receive coverage with the Depeg Swap.
Since Cork is a new primitive to manage and price risk, it opens up a completely new design space in DeFi, some of the key use cases for the protocol are the following: