Waterfall DeFi (WTF)
IEO: October 20, 2021
Primary Listing: October 21, 2021
Overview: Waterfall DeFi is a risk management protocol built to make nuanced DeFi investing easy. AscendEX is excited to be partnering with Waterfall DeFi (WTF) for its exclusive primary listing, as well as a direct token investor.
1. What is Waterfall DeFi (WTF)?
Waterfall DeFi is a risk tranching asset management product for decentralized finance protocols and applications. Risk tranching is a form of structured products taken from traditional finance, which allow for tighter controls over investors’ portfolios, risk levels, and overall trading strategies. Essentially, tranches are the segmentation of financial assets into multiple buckets, where each bucket corresponds to a certain risk/return profile; tranches with higher degrees of risk are compensated with higher returns, and those with lower risk are entitled to lower returns.
To better conceptualize the importance of tranching for portfolios, it’s helpful to take a step back and look at how tranching is used in TradFi. In principle, securitization and tranches were invented to abstract away from underlying assets, enabling investors to participate in a collateralized asset class, and freeing up capital to focus on originating. This typically works in the following way: originators bundle together loans as a reference portfolio and sell them to issuers, who buy said portfolio and create the new securitized instrument. Issuers then tranche the instrument by various factors such as type, maturity, and interest rates, such that the instruments have varying degrees of risk (and therefore yield) and different privileges in the case of a default. This process directly enhances the credit of senior tranches by subordinating junior ones, giving holders of senior debt priority of payment and therefore higher ratings. On the flip side, lower rated junior debt is compensated with higher interest rates.
In DeFi, instead of originators, permissionless protocols enable users to create pools and depositors to earn yield. As with loans, individual protocols carry unique risks. Yield offered at farms across DeFi often imply a level of security risk, with new farms often offering extremely attractive APYs to entice deposits despite the higher chance of hacks compared to incumbents. Diversification can be an effective strategy to combat this form of risk, as constructing a portfolio of yield farms can prevent complete loss. While effective at preventing dependence on individual pools, such strategies do not solve the risk of volatility in variable rates, which creates uncertainty for users depositing crypto assets and adds increased monitoring costs to their strategies. Natural to this evolution in DeFi is going beyond mere diversification to tranching, which mitigates the uncertainty users face when putting capital to work in various DeFi protocols and enables them to trade potential upside for increased certainty of an accepted lower rate of return.
Waterfall DeFi is taking this practice and applying it to DeFi, which is structured in the following manner:
● Tranches are backed by liquidity pools of various income-generating DeFi assets
● Assets are then organized into tranches based upon repayment seniority, with senior tranches being the first to receive cashflow payments, and junior ones being the last
● Tranches are then sold to investors of various risk profiles; risk averse investors can gain access to higher fixed APY products relative to traditional lending products, and risk tolerant users can get access to leveraged yield at even higher APYs in the form of subordinated tranches.
Asset Management / Tranching in Crypto
Over the past year and a half, there has been an explosion in the number of asset management protocols across multiple DeFi ecosystems. These include all types of unique and innovative protocols, such as those focused on indexing, portfolio management, hedging, among others, and have attracted a lot of attention and engagement in the form of TVL. A subset of these protocols have specifically focused on risk tranching:
On Ethereum:
BarnBridge (BOND): BarnBridge is a risk tokenizing protocol, enabling yield sensitivity and price volatility hedging. It does this by pooling investor funds, accessing debt pools on DeFi Protocols, and tranching them into different assets. BarnBridge has had TVL as high as $550M, and today stands above $21M.
Saffron (SFI): Saffron too is a tranche based asset collateralization platform, enabling LPs to select customized risk and return profiles. Saffron is now launching its V2 on BSC in addition to Ethereum.
On Binance Smart Chain (BSC):
With increased adoption across the BSC ecosystem, a number of protocols have innovated natively on BSC, leveraging its high performance and gas fee efficiency.
Opium Finance (OPIUM): Opium Finance, a decentralized risk management protocol native to BSC, has integrated the ability for users to curate their own structured products with an array of financial tools to provide an optimal portfolio.
Tranchess (CHESS): Inspired by tranche funds, Tranchess has shown the success of taking a similar approach natively on Binance Smart Chain. Tranchess has built a yield-enhancing asset tracker with varied risk-return solutions, deriving different risk/return profiles out of a single main fund. Over the past several months, Tranchess alone has been able to attract TVL of $1.7B, showing the potential interest in protocols like Waterfall.
AscendEX is extremely excited to support Waterfall DeFi as they iterate and build upon the best practices of asset management. Waterfall is focused on building a digestible gateway into the DeFi ecosystem, making the world of digital assets as frictionless as possible. User experience is a crucial aspect of all applications, and Waterfall is helping construct a strong UX that can be used across DeFi for an easier investing experience.
2. Token Economics
WTF is a BSC based utility token, with the following current and planned functions:
● Staking on AscendEX (at TGE) for 100% APR
● Liquidity Mining on PancakeSwap (2 weeks after TGE) for variable rewards
● Governance for $WTF token holders to vote on and propose new implantation to Waterfall DeFi
The area chart below calculates market capitalization by multiplying the number of WTF tokens that will be available for sale priced at the IEO by a pricing of $0.35 (note this assumes price action following IEO is neutral and does not change). On the X-Axis is the number of days after primary listing to display in aggregate a nine-month timeline. On the Y-Axis is the notional market capitalization priced according to the IEO at $0.35.
3. Waterfall DeFi Partnership with AscendEX
AscendEX is pleased to be an investor in Waterfall DeFi and is excited to be a partner for the IEO and exclusive primary listing of WTF under the trading pair WTF/USDT. Details are as follows:
Commentary:
Today, the DeFi environment is largely characterized by overcollateralization and variable rate yield opportunities. Protocols that exist today are often still considered high risk and require a level of sophistication that makes it not worth the uncertainty for many. At AscendEX, we understand that asset management tools of many kinds are an important solution for onboarding capital into the DeFi ecosystem. Specifically, we believe that mature risk tranching markets are a critical financial primitive that will enable the maturation of DeFi, and is crucial for onboarding TradFi players into the broader crypto ecosystem, who often view risk through the management and mitigation perspective. As more tranching products come to market, the perceived and actual risks in DeFi will decline, which will enable users with lower risk tolerance chasing stable returns to more comfortably deploy capital. WaterFall DeFi is a premier example of what risk tranching can look like in DeFi, and AscendEX is excited to support them in their exploration.
Beyond being a venue for projects to access robust trading conditions and liquidity for their tokens, at AscendEX we view ourselves as a partner helping bridge the worlds of CeFi and DeFi. By integrating directly with the protocols of many of our listed tokens, AscendEX enables users and traders less familiar with the intricacies of DeFi to benefit directly from staking rewards native on the platform. With Waterfall DeFi, AscendEX sees a future where structured products like risk tranching are widely available to users all over the world, and can be similarly integrated with the broader financial system for the benefit of all.
Appendix:
For more information regarding Waterfall DeFi, see below:
