Sneak Peek into Tranche Pools (Part II) — Senior Tranche

This is Part II to our Sneak Peak into Tranche Pools series. You may read Part I here.

By way of brief recap, our Tranche Pools are split into 2 distinct tranches — Senior Tranche and Junior Tranche. We will be delving into the Senior Tranche in this article.

Senior Tranche

In a nutshell, Senior Tranche has a fixed APY and are less risky compared to Junior Tranches. In exchange of risk protection, Senior Tranche investors give up the potential upside of yield and settle for a fixed and guaranteed yield for the selected duration of the deposit.

Parameters

In making a Senior Tranche Deposit, users simply select the (i) deposit amount; and (ii) maturity date/duration. Based on the selected parameters, the guaranteed APY will be generated. In general, the longer the duration selected, the higher the guaranteed APY.

Non-fungible tokens (NFT)

Each Senior Tranche deposit is represented by a BEP-721 NFT (srBond), containing the specific parameters of that specific deposit including the deposit amount, maturity date, and guaranteed APY. srBonds are transferrable, which means one could sell srBonds before their maturity date at a discount to another party who is willing to hold the srBond until maturity to claim the deposit amount plus the guaranteed returns.

CDO.Finance will dedicate a Discord channel to serve as a platform for buyers and sellers of srBonds to communicate and enter into private arrangements amongst themselves.

Senior APY

The Senior APY reflected in a particular Tranche Pool determines the annual percentage for the Senior Tranche at the particular point in time.

It is derived for all Senior Tranche deposits in existence by annualizing the percentage difference between the deposited amount and the return using the following formula:

((return/deposit amount) / duration)) * 365 * 100

Protocol Fee

The protocol fee on Senior Tranche is 5% of returns, which is collected at maturity.

Example

To illustrate the above, Peter deposits $1000 and chooses a maturity date 1 year away. The guaranteed APY based on Peter’s selection is 10%. After 1 year, Peter can redeem his investment and he receives $1000 + ($1000(10% * 95%)) = $1095.

Target Clientele

Based on the above features of the Senior Tranche, we can see that the target clientele of the Senior Tranche is the risk-averse investor. In line with the explosion of retail interest in the Binance Smart Chain, we can expect more incoming capital that is risk-averse in nature. These would come from institutional investors or retail investors with idle capital seeking secure yield.

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