Overview

Introduction:

Today’s onchain lending markets are generally one-size-fits-all,: all lenders sit in the same risk pool and earn the same yield. When losses arise, they are socialized pro-rata across all depositors. In contrast, traditional credit markets rely on structured tranches to manage risk. Senior tranches enjoy first-loss protection and priority withdrawals, while Junior tranches absorb first losses in exchange for amplified yields.

To make on-chain lending accessible for institutions and risk averse allocators, a tranching primative is required. LayerCover is built to solve this problem, enabling tranching to be built directly on top of existing lending vaults on protocols including Morpho, Euler and Aave.

Tranching layer

Where next

• Tranched Vaults: the senior / junior product model.
• Protection model: how tranches split returns and losses.