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.