Target Assets & Use Cases

The primary use for Cork Swap Tokens would be to target Reference Assets offering high yields with some level of duration, illiquidity or credit risk, such as vaults, RWAs and yield bearing stablecoins. Cork Swap Tokens can offer investors the ability to earn yield from such assets whilst hedging associated risks. Furthermore, illiquid reference assets, such as vault tokens or RWAs, can through the coupling with a Cork Swap Token, become deeply liquid and as such more suitable to be used as collateral in DeFi. A few of the key use cases for Cork Phoenix include:

Onchain Vaults: Vaults often have high utilization rates (80%–90%), leaving limited liquidity available for instant withdrawals. For example, at 90% utilization, only 10% of collateral is immediately withdrawable, causing an asset-liability mismatch. Often vaults can earn a higher yield by committing their full set of capital towards strategies with some level of duration risk or illiquidity risk, including L2s with 1+ week withdraw delays. Under high redemption pressure, users may face liquidity shortages and delayed withdrawals. Cork’s vault liquidity solution addresses this by providing programmable, on-demand liquidity via Cork Swap Tokens, creating instant liquidity buffers that enable immediate withdrawals, regardless of the vault’s utilization rate.

RWA Looping: A common issue when trying to integrate RWAs into DeFi is their duration. For example many credit funds have quarterly redemption windows with multi-week redemption delays. Meanwhile, these tokens have limited secondary liquidity. This complicates the ability to integrate such assets into lending markets to perform looping trades, as liquidators are unable to take on such duration risk. By creating a Cork Pool with the RWA as a Reference Asset, it can achieve immediate deep liquidity to fully offboard duration risk to Cork underwriters. This opens up long-duration RWAs to be used as high quality collateral for looping strategies.

Lending markets: Users can bundle their Reference Asset with a Cork Swap Token and lever it up on lending markets. If the loan that is taken is the same as the Collateral Asset, during the duration of the Cork Swap Token, there is no liquidation risk and a very high Loan to Value (LTV) ratio could be achieved which could allow for very high leveraged farming opportunities.

Risk free rate: Fixed rate protocols, such as Pendle, offer investors the onchain equivalent of a zero-coupon bond that offers a fixed rate of return during a duration of time. The primary risk for the “bond holder” is that the asset you receive back will be depegged. With a Cork Swap Token, you can eliminate the depegging risk. Essentially, the fixed rate minus the price of the Cork Swap Token becomes the “risk free rate of return”. The zero-coupon bond, such as a Pendle PT, can be coupled with a Cork Swap Token with the same expiry, to achieve such an instrument.

Asset hedging: Investors with exposure to for example an LRT can hedge the depegging risk of their position, thereby achieving a lower risk profile. Cork Swap Tokens give investors who allocate to yield bearing Reference Assets the choice of which level of risk and return they wish to take on. A position can be fully hedged, partially hedged or unhedged, depending the appetite for risk, volatility and yield an investor wishes to take on. Pockets of capital that for example would like to allocate to yield opportunities such as Ethena’s USDe or LRTs, but were unable to due to perceived risks, could be unlocked with Cork Swap Tokens.

New yield source: Cork Principal Token represents a new form of yield generation opportunity in DeFi, which can be integrated into other dapps such as lending markets. Cork Principal Tokens can be used as collateral to further increase yield generation for underwriters.