Waterfall DeFi in-a-nutshell
With the announcement of our Public Sale, we would like to take this opportunity to present a quick, in-a-nutshell article about our protocol. It could serve as a crash course for our newest community members, or a warm reminder for the OGs. Enjoy and feel free to share this with your friends so we could loop in everyone on what we are building right now!
What is Waterfall DeFi (WTF)?
Waterfall DeFi is a decentralized protocol that brings true risk tranching to the DeFi landscape. By leveraging a sequential payment system and risk-tranching features, the platform enables DeFi users to optimize their yield farming strategy.
How does Waterfall DeFi work?
The platform aggregates yield farming strategies in a portfolio and then slices the portfolio into different buckets or tranches. A sequential or waterfall-like manner of capital distribution is utilized to pay the cash flows generated from the portfolio. The senior tranche is paid first, and the junior tranche is paid the last.
The senior tranche gets the priority and hence would be the safest of all the tranches, while the junior tranche has the last right to cash flows and therefore would be subjected to the highest risk of all the tranches.
The junior tranche is rewarded with a portion of yields from the senior tranches in return for the higher risk, leading to high leveraged returns for the junior tranche and capital protection for the senior tranche.
Essentially, the platform users can choose to invest in different tranches of a portfolio and earn varying levels of yield based on their risk exposure. Waterfall DeFi tranches would enable both risk-averse and high risk-tolerance investors to generate expected returns from the same set of DeFi assets.
In late 2020 a group of experts from TradFi and DeFi conceptualized Waterfall DeFi. The founder, 0xWaterfall, has over 10 years of experience in a Tier 1 Investment Bank specializing in Cross Asset Structured Products and has spent the last 5 years deploying trading strategies in crypto. The project lead, Tom Cheng — was previously a consultant with McKinsey & Co. He worked closely with C-suites of Fortune 100 companies to design and implement organizational and business changes.
Seeing how the DeFi landscape is getting more and more mature, they believe structured products are looming on the horizon. They aim to leverage their experience from the TradFi world and bring innovations to the DeFi community. Waterfall DeFi is set to democratize structured financial products — something considered to be extremely complex — for everyone.
What is risk tranching, and what can it bring to DeFi:
In traditional finance, fixed-rate products represent a sizable chunk of the total market. However, in the DeFi market, lending protocols are almost all under variable rates. DeFi users are looking forward to a fixed income solution that would allow them to diversify their investment strategy. Waterfall DeFi packages different DeFi assets and creates a range of better options for the community, ranging from fixed yield, low risk “senior”, to higher risk, high yield “junior”. This is a relatively straightforward concept that makes it a good vessel to push forward the idea of structured financial products.
Key features of Waterfall DeFi:
- True risk tranching
Waterfall is the first DeFi risk tranching protocol that provides a product that closely resembles its TradFi counterpart. Our initial product will consist of 3 tranches: Senior, Mezzanine and Junior. Senior and Mezzanine will have a fixed yield, and Junior will have a dynamic yield based on the performance of the underlying farms. Initially, the protocol will have a subscription limit for each tranche to ensure an ideal thickness between the three tranches. Maintaining ideal thickness is critical to ensure that there are enough deposits in the Senior and Mezzanine tranches to cover Junior’s dynamic yield and enough deposits in the Junior tranche to cover the fixed yield of Senior and Mezzanine in case of a down run. In the future, the protocol will introduce a dynamic rewarding system that pays the highest rewards to the most under-funded tranche. As far as we know, Waterfall is the only DeFi project working hard to set up a system that will be engineering a real risk tranching product for the community.
- Multiple product farm
Waterfall plans to bring various yield farming products into its portfolio and create ample options for the community to choose from. In its initial launch, Waterfall DeFi aggregates three BUSD lending vaults (C.R.E.A.M., Alpaca and Venus). The team handpicked these three farms for the first product due to their high TVL, stablecoin liquidity, and sustainable APY. Going forward, the team will continue to explore and engineer more creative product portfolios for the community.
- BSC then multi-chain
Initially, the protocol will be deployed on the Binance Smart Chain (BSC) due to its low gas fee, stable APY farms and growing community. Cross-chain compatibility to the platform, which includes products on Ethereum, Solana, Polygon, etc., is on the roadmap.
Waterfall introduces true risk tranching to the DeFi landscape. By creating a risk-tranching product, the platform will be an innovator in the industry. Waterfall DeFi will be a crucial part of the evolution of the gradual introduction of structured financial products on-chain. With a dedicated team with passion and knowledge, this protocol is definitely something that yield farmers need to look out for!
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