Technical Mechanism
dTRANCHE: Fixed-rate Vault is the first product that Skyrim Finance is building.
The purpose of our first product is to satisfy investors' different risk preference or financing needs. dTRANCHE can be deployed with a two-token structure that allows investors to invest in two different kinds of fungibles, interesting bearing tokens: SENIOR and JUNIOR. JUNIOR, known as the "risk token", takes the risk of "defaults" (real yield < expected yield) first but also receives higher returns. SENIOR, known as the "yield token", is protected against defaults by the JUNIOR token and receives lower returns. This is similar to common Junior/Senior investment structures.
The Loan Market Maker deposits collaterals to mint two kinds of fungible tokens SENIOR token and JUNIOR token in exchange of their deposit. MMs can choose to sell the fungible token(s) to earn a premium, or provide liquidity in Uniswap pools with the fungible token(s) and earn fees with liquidity rewards. Both senior and junior investors can choose the interest rate with adjusted risk and leverage they need.
The workflow consists of five main components: Collateral Deposit/Withdraw (Deposit/Withdraw), Yield Tokenization (Invest), Vault of Yield (Vault). Yield Clearing Process (Settlement) and Liquidity Pool Reward (Pool).
Users use the Deposit function to mint SENIOR Token (ST) and JUNIOR Token (JT) with collaterals. ST and JT can be used to invest in the senior loan assets and junior loan assets. Likewise, users can use the Withdraw function to redeem their SENIOR Token (ST) and JUNIOR Token (JT) and return the collaterals back to them.
LOAN tokens are maintained on a 1:1 basis with their collateral in corresponding interest rate products, e.g. Compound (C-token), AAVE (A-token) and Sushiswap (LP-token), etc. It also can be the symbol of a basket of different interest rate products as a combination.
Each loan asset is divided into two levels, senior loan and junior loan, where senior loan shares daily fixed income, and junior shares floating income after the settlement of senior loan. SENIOR tokens can only be used to invest in senior loans, and junior tokens can only be used to invest in junior loans.
SENIOR tokens are designed for senior investors who are willing to take low risk but low return. ST holders have the access to buy SENIOR LOAN token (S-Loan).
JUNIOR tokens are designed for junior investors who are willing to take high risk and high return. JT holders have the access to buy JUNIOR LOAN token (J-Loan).
SENIOR LOAN token is the proof of purchasing senior loan asset. The holders of S-Loan will execute the rights as senior investors. The holders will receive Expected APY return and avoid yield volatility. Besides, the S-Loan is protected against "defaults" (real yield < expected yield) by J-Loan holders.
JUNIOR LOAN token is the proof of purchasing junior loan asset. The holders of J-Loan will execute the rights as junior investors. The interest rate of junior investors will be more volatile with high leverage. It takes the risk of "defaults" (real yield < expected yield).
The target yield assets in the DeFi market must have enough TVL to avoid volatility due to liquidity issues and they need have sustainable yield in a long run. Thus, we list the potential candidates below:
- Lending: Maker, Compound, AAVE
- Exchange: Uniswap, Sushiswap, 1inch
- Derivative: Synthetix, Hegic, Cover
Last modified 1yr ago