What is yDAI and it’s de peg insurance by Nexus Mutual

To understand this subject we have to begin from the very basics

The basics : Yield farming. Yield farming is making crypto currency by investing crypto currency.

Essentially there are 3 forms of yield farming i.e 3 ways to invest your crypto to get more crypto :

1. Lending/Borrowing

2. Supplying capital to liquidity Pool

3. Staking LP tokens

Now what Nexus Mutual is doing is concerned with the Lending Borrowing sector.

What happens is that there are protocols where you can lend your stable coins (DAI, USDT, USDC) and get crypto as a reward at the end of the day. Now what happened was that “yield farmers” (the people who lend their stable coins) will wake up every morning and invest their stable coins in a protocol which will give most returns. This process was very monotonous and could easily be automated.

This is what yearn Finance did! When we say yDAI, it is basically the token Yearn Finance issues to investors who invest real DAI in their pools, this token is called yield bearing token and is a representation of the investment (similar to how LP token is the representation of the provided liquidity). After the investment, in simple terms Yearn Finance then invests that capital in the most god damn profitable pool for that day/period.

Now the ratio of yDAI and DAI must be 1:1 so that people can take out their investment anytime, but if for some reason the protocol faces loss due to making a bad investment and the value de-pegs by 10%. Meaning the ratio of yDAI : DAI becomes .9 : 1 or lower, then Nexus Mutual is providing insurance for the same. In which they will cover 90% of the loss in exchange for the yDAI tokens.

Lmao, seems like less of an insurance and more of a trade, but okay. I hope the article helped you to understand what is yDAI, de pegging and it’s insurance.

Live Long and Prosper

Cheers

Daksh Joshi