> For the complete documentation index, see [llms.txt](https://docs.tydro.com/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.tydro.com/ii.-core-concepts/tranching.md). # Tranching Tranching splits a loan into senior and junior claims so lenders can choose their place in the loss waterfall for their preferred risk & return profile ### The loss waterfall Lending through a tranche means holding a position in a stack. Losses hit the bottom of the stack first and work upward. Yield is distributed to match, so the positions that absorb losses first earn more. * **Junior:** takes losses first and earns the highest yield. This is the first-loss position. * **Senior:** is paid first and takes losses last, in exchange for a lower yield. Because the junior absorbs losses before the senior, junior capital provides coverage for the senior position. A senior position is protected up to the size of the junior capital beneath it. ### How it works on Tydro Supplying USDC to the launch market returns an ***aUSDC*** receipt token. Because the market is isolated, that receipt represents a share of the single aggregate loan pool against kBTC, not broad exposure across the protocol. The receipt token can be deposited into tranching smart contracts or triparty agreements that split it into junior and senior positions. The tranche contracts are live. The user interface and the contract audits are still in progress, so this will be available shortly after v2 launch. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter, and the optional `goal` query parameter: ``` GET https://docs.tydro.com/ii.-core-concepts/tranching.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is optional and describes the broader end goal you are ultimately trying to accomplish on behalf of the user. GitBook uses it to tailor the answer towards what is most useful for that goal. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.