Can DeFi Handle The Next Depeg? Cork Tokenizes The Risk To Hedge & Trade

In the movie based on Michael Lewis’s bestselling book The Big Short, Ryan Gosling’s character is selling credit default swaps (CDS) prior to the 2008 subprime mortgage crisis. A credit default swap is a financial derivative that acts as insurance against the risk of default on a debt security. This tool allows a lender who is worried about a borrower defaulting on a loan to offset or swap that risk. The lender buys a CDS from another investor who agrees to reimburse them if the borrower defaults.

Similarly as DeFi scales and trillions in global assets move onchain, robust markets will need risk management tools to grow. One of the fastest growing sectors in DeFi, lacking an effective risk management framework is the pegged asset space. Pegged assets include stablecoins and liquid staking/restaking tokens that collectively represent hundreds of billions of dollars at stake.

On March 4, a new protocol for tokenizing the risk of depeg events for stablecoins and liquid (re)staking tokens launched on Ethereum Mainnet, called Cork. Cork’s mission is to enable a DeFi ecosystem with even more stability, transparency, openness, and financial opportunity. Prior to Cork, there have been limited ways to price or hedge against these risks, aside from insurance against depeg events like Nexus Mutual. Cork tokenizes risk, allowing the market to price, trade, and hedge against depeg events.

Built on Uniswap V4, each market prices the risk of a depeg event, structured as a token pair consisting of a redemption asset vs a pegged asset, ie sUSDS:USDe.

In the example above:

• The redemption asset is sUSDS

• The pegged asset is USDe

• Each market operates with fixed-duration terms so this expires May 28, 2025

• The Peg Stability Module mints Depeg Swaps vs Cover Tokens with an expiry

• All of this runs through an AMM on Uniswap V4 for determine pricing

Traders can choose to buy a Depeg Swap to hedge against a depeg or buy a Cover Token to earn a fixed yield as long as no depeg occurs.

To learn more and explore how Cork enables massive new market for trading, hedging, and earning via tokenized risk for market-wide depeg events, check out the latest episode of The Edge Podcast below!

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🔗 Guest Links 🔗

► Cork website: cork.tech

► Cork on X: x.com/corkprotocol

► Phil on X: x.com/philfog

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• Follow @Nomaticcap on X (Twitter)

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