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Mechanics & Calculations

How Tranche Works

Understanding cTokens, aTokens and Others

Understanding Tranches

Tranche is the french word for $SLICE or portion. Tranches are segments created from a pool of financial instruments. In traditional finance, these are often bonds or mortgages. These instruments are pooled and sliced to create new instruments with different risk profiles, or other characteristics to make them suitable for different groups of market participants. Using this mechanism we can create a high-risk instrument and a low-risk instrument, appealing to those who want higher volatility as well as those looking for a safe return on their investment.

Tranche Calculations

In our protocol, we divide tranches into two clear pools:

Interest is traditionally calculated as follows:

$taRate = (1+fixedRate)^y$

Converting years for Ethereum:

$y = (currentBlock - tGenesisBlock)/ blocksPerYear$

Combining these:

Since this is a bit computationally intensive, we calculate a per block return and convert the equation to:

$taRate = (1+fixedRPB) *(currentBlock-tGenesisBlock)$

Where:

$fixedRPB = fixedRate * valueLocked$

This converts our line graph into one that looks laddered, but it is exponential in the long-run.

This is calculated as follows:

Scenarios

While Tranche A holders receive a fixed rate as long as the Tranche Protocol has that amount available, Tranche B holders return is dependent on several factors:

- 1.Number of Tranche A holdersβββ
*Higher*, better: The more Tranche A holders there are, the more Dai is invested in the underlying protocol at a higher return. - 2.Number of Tranche B holdersβββ
*Lower*, better: The fewer Tranche B holders there are, the fewer participants there are to share in the protocol surplus. If there are fewer B holders, they each take a higher share.

- 1.Number of Tranche A holdersβββ
*Lower*, better: The more Tranche A holders there are, the more Dai is required to provide their fixed return, the larger the deficit that Tranche B holders will incur. - 2.Number of Tranche B holdersβββ
*Higher*, better: The higher Tranche B holders there are, the more participants there are to incur the burden of the deficit. If there are many Tranche B holders, they each take a smaller loss, as compared to when a few holders incur the losses.

Last modified 9mo ago

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Understanding cTokens, aTokens and Others

Understanding Tranches

Tranche Calculations

Scenarios