GAINS Associates
Published in

GAINS Associates

Waterfall DeFi — Telegram AMA — October 27

On Wednesday, October 27 we had the pleasure to welcome to our telegram chat

Tom Cheng, Project Lead of Waterfall

We asked him some questions about the development of Waterfall DeFi

Some sentences have been slightly edited for readability but the meaning has been conserved.


The Waterfall DeFi platform narrows the set of possible outcomes by giving its users dynamic exposure with customized risk and return profiles via the use of Waterfall DeFi tranches.

Waterfall DeFi tranches are structural investment products that package a pool of yield-generating DeFi assets and slices them into different buckets known as “tranches”. Each tranche is classified based on its seniority and has its own set of unique expected yields, risk and maturity.

The cash flows generated from the underlying yield-generating assets are paid out in a waterfall manner where the senior tranche is paid first and the junior tranche is paid the last. This also includes the adverse scenario where a capital loss is incurred on the invested principal, same waterfall manner of capital distribution will be utilized where the senior tranche would be paid first and the junior tranche would be paid last.

In exchange for taking on the higher-risk, the junior tranche is rewarded with a portion of yields from the senior tranche leading to high leveraged returns.


Q — Ayeley from GAINS: Please introduce yourself. What did you do before crypto and did you have any other previous venture in crypto?

A — Tom from Waterfall: Alright! So… Tom here, I am the Project Lead of Waterfall DeFi, the risk trenching protocol offering structured risk products to the DeFi space…I started off my crypto journey back in 2017, my buddy was at MIT Lab and was using the lab to mine ETH, so I kinda joined on his bandwagon, and have been on and off since then.

Gradually during last year’s DeFi summer, I decided to put more attention into the space, looking into yield farms and applications of derivatives, and finally, earlier this year decided to go all in, and take on the Project Lead role for Waterfall DeFi.

Before going full time in crypto I was working in management consulting, operations, and strategic planning, having worked at McKinsey & Co, before moving to a food delivery tech unicorn Deliveroo. As the Project Lead in Waterfall DeFi, I am basically in charge of handling everything and making sure Waterfall gets to become one of the projects that stands out across the space and offers what the DeFi community needs especially in terms of risk management options in yield farming.

Q — Telegram user Kaptin Black: What challenging/dynamic problems have you identified about crypto and DeFi that you intend to solve with project Waterfall?

A — Tom from Waterfall: I think the answer to this is twofold

1. The protocol itself is trying to tackle issues that are facing a lot of investors, that the return % of the crypto investment is so dynamic, and sometimes that scares some investors away. With Waterfall DeFi’s tranching concept, we can actually offer those investors some “protected” investment opportunity, where the risk and return are leveraged onto others who actually are willing to take on the risk — in this case, modulating the risk is like cloud computing — pooling in the community and dynamically assign the risk/load based on tolerance level. This to me is a fascinating idea that would benefit a lot of people

2. Overall DeFi, I truly believe the community as a whole is pushing the envelope, and like I said earlier this movement will fundamentally shift how the global community will interact with the capital market. I was involved in the retail business before I joined crypto — it is an old school / old fashion industry, with limited innovations and plenty of resistance to change. Visa is charging different outlets 2% of the fee for each transaction — and that is a huge cost when you apply that on a thin margin business like B2C retail. DeFi, when developed further (I know the gas fee is still an issue), can perfectly solve issues like this, reducing the middle man fee, improving efficiency, and allowing people who create value to reap their reward. This is just one example where I feel personally inspired to try to contribute more to the community, and see how this can shape our world to be a better one

About Waterfall DeFi

Q — Ayeley from GAINS: How easy was it to make the decision to leave the mainstream tech industry into crypto? There must have been something special about the Waterfall. You can tell us what the Waterfall project is about too as part of your answer.

A — Tom from Waterfall: Agree — it is not a super easy choice to just jump out of the mainstream job, with stable pay and steady job scope. Just ask my friends, who I told them the amazing experience working in a crypto project and they are still quite hesitant haha. However,

I was not satisfied with a normal job, really wanted to solve some interesting/dynamic/challenging problems, and when I read more and more about crypto and especially DeFi, that really got me excited.

I fully believe DeFi will fundamentally change how the global community interacts with the capital market, providing an additional layer of efficiency that would help to push a lot of the issues that come with centralized banks. As long as I feel like I am contributing to the improvement of people’s lives, be it on reducing transaction costs or improving efficiency, that would really get me going and push me forward

So I was fortunate to get in touch with the Waterfall team, and after understanding their vision, I fully believe their product would pave way for the next horizon of DeFi — that is the introduction of structured products and attracting more institutional money into the space

So now let me go a bit deeper into what Waterfall DeFi is about:

It is a yield aggregator protocol that aims to bring true risk tranching to the DeFi landscape.

We are built on BSC initially and would develop portfolios that include different farms. Instead of just offering a yield aggregation product, we actually would slice the portfolio into different “tranches” — essentially each tranche represents a risk/reward combo that would allow the users to select

The senior tranche would receive a reduced yield return, in exchange for first lost protection. Junior tranche would receive a much higher, leveraged yield return, but their capital is used to cover any losses suffered from the portfolio.

For example — in a portfolio with a 10% expected yield, after we slice it into 2 tranches, the senior tranche will receive a 5% return, while the rest will flow to the junior tranche. So in a perfect world, the junior tranche will get 15%

The senior tranche is essentially using their future return to buy protection against any capital lost

So in this example — if the farm underperform and the return is only 3% — seniors will still get their 5% (as they are being paid out first), while junior might see a 2% loss in their capital

Like I mentioned earlier, we are launching first on BSC, with the first portfolio focusing on 3 BUSD farms. Going forward, once we are more mature and the community is more educated about the product, we will be pushing out not just safe, sustainable return package with major farms and high TVL, but also risky leveraged products and new farms with high APY

The goal is to create different types of investment options and risk factors that users can select based on their preferences!

As you can see — it is a very simple, straightforward concept, that actually would offer users a lot of options to better optimize how much risk they want to take and really expand the optionalities in their investment strategy.

Q — Twitter user @adlingshankar: What is tranching and how is it going to be used in decentralized finance?

A — Tom from Waterfall: In the traditional market, a significant portion of the financial products is fixed rather than variable. On the other hand, DeFi lending protocols are currently 100% under the variable rate regime, which lacks the environment for DeFi to cross over with the traditional market. And bring the money into this open, permissionless financial world on the blockchain.

Under the variable-rate regime, the introduction of risk-related products to the DeFi space will bring further development in the already growing sector, and structured products are the next big thing to emerge on the DeFi horizon.

Structured products (options, futures, etc.) allow users to better control their investment portfolio, finesse their risk tolerance, and min./max. their trading strategy to further leverage their positions. Among structured products, the concept of risk tranching is particularly well positioned in the current DeFi market — relatively simple to grasp, it introduces a fixed income product that provides attractive yield options to investors with different risk appetites. In the DeFi space where everyone is seeking a good yield — especially if they’re in a bear market — attractive rates offered by risk tranching products is a strong option for anyone looking to delve deeper into the DeFi community.

Q — Twitter user @molestika: Regarding the tranches, I read that initially, the protocol will have a subscription limit for each one. Does this mean that in the future this will change? On what factors will it depend if they will be maintained with this limit or not?

A — Tom from Waterfall: He is correct that we are launching with a limit for now — and the reason is twofold

1. We are launching our first product, so don’t want to take on something that’s bigger than we can chew, want to do it steadily and gradually — so in this case limiting the TVL would be a good gated launch strategy that would ensure we have a smooth take-off

2. To ensure there are clear yield differences between the tranches, we need to have a certain ratio of deposits in different tranches, and that is especially the case for a small TVL product. If there is too much deposit in the junior tranche, senior won’t have enough protection in case the farms underperform, while if there are too many deposits in the junior tranche, not enough yield is let go from senior to fund the leveraged yield, making the yield % almost the same between the tranches. As a result, setting a limited TVL will ensure the product is launched with clear differentiation.

So we follow what PieDao does with their bake/oven approach, only when all three tranches’ max cap is hit, then the product will be deployed and locked for 7 days on the farm. Just like how the following graph shows

Going forward, we will gradually introduce non-limited TVL farm or continuous farm — that will exist at the same time with our locked TVL options — so then users can choose which are the right strategy that would like to take part in, and we also value this diversity and optionality for our users

Q — Telegram user Ana: Rather than offering a performance aggregation product, Waterfall, it will divide the portfolio into different “tranches” of risk. So can you explain what these sections represent and what are the differences between senior, mezzanine, and junior sections in a visual representation?

A — Tom from Waterfall: Visually this is the best representation of the characteristics of each tranche

As you can see, the more senior the tranche, the earliest the tranche will get to collect the yield distribution, while the junior tranche will be the last to receive, in this way Senior is protected by the subsequent tranches in case of a downturn of event. In exchange for this protection, senior tranche users will give out some of its expected yields as almost like “insurance payment” to the junior tranche users, so the junior tranche users would get to leverage their return by taking on additional risks that other users don’t want

This creates a hedge where users in the same pool can decide how to manage their risk/return calculation

Q — Telegram user Godpelpa: I understand that Waterfall charges small commissions for withdrawing and depositing funds on the platform. So, can you explain what you do with the funds raised? Are they used entirely for the continued development of the project or are they instead used to benefit the holders?

A — Tom from Waterfall: So the answer to this question is yes and yes

We actually have a very small amount of % attached to each transaction. The fund collected will be put into two uses:

1. Part of it will be used to provide the basic operation of the protocol, making sure that we can keep the project going and expanding — so continue development

2. The rest we will actually be rewarding back to the community. Those who staked us on the protocol will receive a governance token veWTF. Those who hold veWTF tokens will get a share of the transaction fee pool — thus making sure that people holding our token will have the right return — so reward the supporters that hold and stake our tokens

Going forward, the reward ratio will be determined by the DAO once it is set up — and the initial split will be shared with the community soon! Stay tuned


Q — Ayeley from GAINS: The $WTF token recently listed on Ascendex. What role does the token play in the Waterfall Defi ecosystem?

A — Tom from Waterfall: Yes, our token went on a public sale and was listed on AscendEx and Pancakeswap last Thursday. The team is super excited about this and we are now trading at ~2.5x of our listed price, so very thankful to see the support from the community.

Our project is fully committed to making the protocol as decentralized as possible. Even our team members are formed across the world of yield farming strategists and DeFi OGs.

As in our tokenomics, we have committed 60% of the tokens allocated to our community, via user incentives like staking, liquidity provisioning, public sale, and our treasury — the usage will be decided in our future DAO.

For more information about our tokenomics, can refer to this article.

There are three major use cases for our tokens:

1. You can stake our token to earn the governance token, which in terms would allow you to vote on upcoming protocol decisions such as approving a new portfolio strategy

2. Holders of our governance token would have the right to earn a portion of the transaction fee we charged from users

3. Going forward, users with our governance token can propose their own risk tranching products and earn structuring fees


Q — Ayeley from GAINS: Did you raise funds so far? If so, how did you handle them? Are you planning to do any future raises?

A — Tom from Waterfall: So we are blessed with some really strong supporters that believe in us, for example, GBV is our lead investor and they also introduced a lot of partners, collaborators, and investors to us over the past few months.

One thing about GBV is that the team there also has a very strong traditional finance background, so they are all pretty familiar with the concept of structured product and risk tranching, they share the same belief that structured product is what is going to push DeFi to the next level.

Actually, you can read a bit about their view on the protocol here.

So through that, we raised $2M from one private seed round — and that is actually enough to set us up to build out the product — you can read further on this press release.

We are a very small team, we don’t want to overspend the funding on unnecessary expenses, all about making sure that the fund is being deployed right in the building and expanding the product and community — luckily our investors share the same thought and provide us with the right support, be it expanding our marketing reach, introduction to other DeFi protocols, or providing their knowledge and experience in this sector

We actually don’t have any further raises in mind, as the key is to make sure we get the product out and let the community try it. By then, we would be able to better judge what else needs to be built upon and figure out do we have the right amount of resources to tackle that and if not, how much do we need to raise to support.

Competitive Advantage

Q — Telegram user Irfane: How is Waterfall Defi different from other projects?

A — Tom from Waterfall: There are a few similar concepts protocols in the space now, and Waterfall is a bit different from them due to the following features:

1. Diversification: Our portfolio strategies package multiple DeFi assets and yield farms to ensure risk and return diversification

In the future, we aim to include more diversified assets to ensure an abundance of options for the community.

2. Clear tranche differentiation: A TVL limit is set initially for each tranche in the initial launch to ensure clear tranche differentiation

Going forward will lift the limit but will introduce dynamic reward to incentive optimal user behavior

3. Three tranche approach: We will launch with a three-tranche product, expanding the optionalities for the community.

4. Fixed income product: Will introduce a fixed income product by locking up the user deposit for a fixed period of time (seven days) during the deployment period

I can also highlight all the differences in the following comparison matrix, so you can take a look as well

Business Development

Q — Telegram user R1Ixoraa: Do you have plans for the Waterfall Learn and Earn program? While enthusiasts are studying the Waterfall project, can they also get $WTF for free?

A — Tom from Waterfall: Yes — going forward we do plan to have an ambassador program for our product — just like many projects that successfully leverage this to improve the understanding of the protocol among the community.

For right now the team’s focus is solely focused on launching the mainnet, and making sure that we are getting the product out asap, and getting the community to try it!

Tom, thanks for coming into our community, and taking the time to answer our questions. Anything else you’d like to say? Where can we follow you to stay updated? — Ayeley Commodore-Mensah from GAINS

Thank you so much for having me today, we are really grateful to be interacting with the GAINS community.

At Waterfall DeFi we keep building tirelessly to offer the DeFi community the autonomy of choosing between risk and rewards for everyone’s yield farming journey. We believe our tranched products will be one of a kind and it’s gonna be a great addition on top of the DeFi legos we have now.

Our main product launch is just around the corner, so be sure to follow our Telegram for the latest updates. Until then stay safe and enjoy the Web3 revolution brothers and sisters!

Website | Twitter | Telegram | Discord | Medium | Telegram ANN

— Tom from Waterfall

GAINS Associates is the World’s First Decentralized VC, allowing anyone that holds $GAINS to invest in the crypto unicorns of tomorrow. With over 3 years of experience and several ultra-high return deals, we are removing the barriers of entry to investing and changing the world, one deal at a time.

GAINS stands for Group Action Is Never Small, embodying the collaborative spirit that is the essence of blockchain and decentralization.

In addition, GAINS provides daily news, articles, video interviews as well as fun & educational events.

Website | Telegram ANN | Telegram Group | Discord | Twitter | YouTube




GAINS Associates provides you with the latest news and research in blockchain and crypto. It’s a community for everyone to learn and grow together.

Recommended from Medium

Must-Know Guide Before You Start Creating Your Own Cryptocurrency

What is impermanent loss? Should I be worried?

BitcoinVend + TrustSwap Launchpad: February 24th

How to Hedge your ANC Principal when participating in liquidity mining on Anchor?

Huobi NFT x SomniLife AMA Announcement

ShoeFy BSC Bridge Guide

What is Elastos (A simple Summary)

DueDEX: What’s Happening in Crypto World Today? — Oct. 17th, 2019

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
GAINS Associates

GAINS Associates

World's First Decentralized VC - Ultra High Return Deals for EVERYONE - #Crypto news, insights, research. JOIN US NOW! 👉! 🚀🔥

More from Medium

Pollen — Telegram AMA — December 15

Recap — Decentralized Club AMA Session with Teneo Finance

Paycer Community AMA Announcement

ChainGain Tokenomics & 2022 Roadmap Update