Introducing our first product — BUSD Falls
As the cryptocurrency industry matures, so does its product offerings. Over the past year, we have all witnessed the rise of DeFi — on-chain lending and borrowing, liquidity pools, leveraged trading, derivatives such as equity tokens and indexes. Yet there is still a gap to fill in the crypto industry: many structured, traditional financial instruments are missing, one of the most significant being risk tranching. Waterfall DeFi aims to bridge that gap between TradFi and DeFi’s offering through its risk tranching products.
Today, we’re delighted to introduce our first tranched product offering: BUSD Falls. In this article, we aim to cover the key product features, what this means for the average investors, and how it can shape the yield farming paradigm in DeFi significantly.
What is BUSD Falls?
BUSD Falls is a portfolio of three carefully selected BUSD stablecoin lending vaults on BSC (Binance Smart Chain): Alpaca Finance, C.R.E.A.M. Finance and Venus. This portfolio is sliced into three tranches: Senior, Mezzanine and Junior. (For more information on how “tranching” works, click here for our deep dive.)
All three tranches have a fixed maturity period of 1-week. The Senior and Mezzanine tranche earn a fixed APR, while the Junior tranche earns a dynamic APR.
The max deposit allowed (TVL) in each tranche is fixed to ensure ideal product optics that offer a true risk-and-return tranched product to the DeFi community.
BUSD Falls Optics
Through tranching, Waterfall DeFi offers three different yield-baring products with unique risk-and-return profiles from the same portfolio of DeFi assets.
The Senior tranche has the first priority to receive cash flows from the portfolio, earns a fixed weekly APR, and enjoys 40% capital subordination from lower tranches. That means that the lower tranches (representing 40% of the portfolio deposit) cover any potential losses of the senior tranche during an adverse scenario where a capital loss is incurred or in the situation where the portfolio yield is less than expected. Essentially, the senior tranche, with the highest cash flow payment priority and the potential downside protection, provides a relatively safer investment option for our risk-averse users.
The Mezzanine tranche has the second priority to cash flows and will earn a fixed weekly APR higher than the Senior tranche. Users investing in the mezzanine tranche will enjoy 10% capital subordination from the junior tranche.
The Junior tranche has the last priority to cash flows, hence earning the remaining cash flows in the portfolio after paying off the Senior and Mezzanine tranche investors. Given the fluidity of the entire DeFi asset class, the APR for the Junior tranche is dynamic. Under ideal scenarios, users investing in the Junior tranche will earn a high leveraged return.
BUSD Falls Deployment Cycles
Each BUSD Falls deployment cycle is of a fixed period of 1-week. There is a deposit period before every deployment cycle where users can deposit their funds into the tranche of their choice. After the deposit caps are met across all the tranches, the deposited funds will be locked for 1-week, and the smart contract will execute the fund deployment cycle automatically (starting with cycle-1).
At the end of each deployment cycle, users can redeem their funds and the yield earned. Suppose users wish to continue investing their funds in the next deployment cycle. In that case, they may choose to redeposit any portion of their principal and yield into any available tranches, further earning a compounded yield.
Below let us walk you through some key features that separate us from comparative protocols in the market:
Our portfolio strategy packages multiple DeFi assets and yield farms to ensure risk-and-return diversification instead of tranching a single DeFi asset or yield farm. Our first product BUSD Falls tranches a portfolio of three BUSD stablecoin lending vaults on BSC (Alpaca Finance, C.R.E.A.M. Finance and Venus) — specifically chosen for their high TVL, sustainable yield, and reliable code — we aim to offer an array of diversified portfolio strategies that include multi-asset liquidity (LP tokens), a wide range of DeFi pools (underlying assets), and tranches that will optimize users’ farming strategy.
Three tranche approach
Unlike other tranching platforms that offer only a Senior and a Junior tranche, we slice our portfolio into three tranches instead of two.
A three-tranche approach allows us to offer a higher capital subordination for the Senior tranche and higher leveraged returns for the Junior tranche, while creating an additional tranche (Mezzanine) that provides a fixed APR close to the average portfolio APR.
Unique tranche optics
On most existing tranche platforms, tranche thickness is heavily skewed towards the Junior tranche. This imbalanced distribution leads to capital overprotection for Senior tranches and almost no leverage return for the Junior tranche, ultimately failing to deliver the key benefit of tranching to its users.
The tranche TVL limit in our product BUSD Falls will always maintain the ideal tranche thickness, ensuring that each tranches’ optics are unique and offer different benefits to the community.
For example, our Senior tranche optics — fixed one-week maturity, fixed weekly APR, and highest seniority allows DeFi users to invest in a reliable investment strategy similar to a fixed income product in TradFi. While our Junior tranche optics — fixed one-week maturity, dynamic APR and lowest priority will allow DeFi degens to invest in a high risk/high return product with additional benefits of diversification and high leveraged returns.
Future Product Plans
Although tranching is a fairly old concept in TradFi, DeFi is only starting to familiarize itself with its benefits. We have seen several tranching products launch in the past year, but we believe none of these platforms offers their users true risk-adjusted returns.
With our first product launch, “BUSD Falls”, we want to showcase the true benefits of tranching and allow our community to earn different risk-adjusted returns. Subsequently, in the not so far future, we will include other stablecoins and large-cap coins to our portfolio of supported DeFi assets. Our team at Waterfall DeFi is very passionate about designing new and innovative DeFi products, and we will continue delivering unique tranched investment products to the DeFi community.