The adjusted risk allocation product offers different levels of risk tolerance by combining multiple portfolio assets

Decentralized Finance (DeFi) could become the most radical development to come in blockchain technology and cryptocurrencies potentially ushering in a new base for global finance.

One of the projects that set precedents for DeFi was MakerDAO, which was the first to use a separate token for governance, along with MKR, and a cryptocurrency-backed stablecoin as collateral – DAI. Next is Compound (COMP), which allows customers to borrow and lend certain cryptocurrencies using a marginalized system that controls collateral risk.

These early developments led to the DeFi market we see today, with many yield products appearing to have bundled into one of three variations. There is the standard deposit / loan program, most commonly used by the average DeFi user, where they simply deposit or lend their tokens in exchange for a return.

Those more advanced may use decentralized exchanges (DEX), in which users place their tokens in a pool of cash, or may also prefer yield aggregators. Each is aimed at users with a different risk appetite, with the risk avers choosing lower stable returns over the more risk tolerant, likely willing to risk more for the higher return of cash pools.

Now, products allow the more risk-averse to invest in riskier products without the risk of loss of capital, making them much more attractive than standard low-yield products. Waterfall DeFi offers structural investment products, in which pools of yield-generating DeFi assets are grouped into three different “tranches”. Each is assigned a seniority based on expected return, risk and maturity.

Slices

The age of the tranches is determined by the capital distribution method, in which the cash flows generated by the portfolio are paid in cascade or in cascade. Payments are first made on the senior tranche, then transferred to a mezzanine tranche. By having the final entitlement to cash flows, the junior tranche presents the highest risk, which entitles them to a greater share of the potential rewards.

In the event of a loss, senior tranche users still receive their principal, in addition to a fixed return, while junior tranche users would suffer a loss of principal but would be reimbursed the remaining principal. While in the event of a profit, senior users only receive their fixed APY, with the rest of the returns going to junior users in the tranche.

The team

With a background in traditional finance, the founders of Waterfall knew the importance of fixed rate offerings as they represented a large share of the total market. Therefore, this has become a niche that they have noticed in a market where loan protocols are almost all variable rate.

More information on the waterfall challenge here

The founder of 0xWaterfall spent ten years with a Tier 1 investment bank specializing in multi-asset structured products, spending the last five years deploying these crypto trading strategies. Meanwhile, project manager Tom Cheng graduated from Harvard and was previously a consultant at McKinsey & Co.

WTF Token

The native governance token issued by the Waterfall DeFi platform is WTF, which will also play an additional utility role. On the one hand, it will play a key role in facilitating the governance of the platform thanks to its decentralized autonomous organization (DAO). WTF holders will play a crucial role in choosing the main features of the protocol.

The WTF token also aligns certain incentives in several ways. It will reward the actors of the WTF platform by deciding how the platform costs will be distributed through its governance. To ensure that the amount of deposit in each of the slices is closest to the ideal ratio, or “thickness,” users depositing with the most asymmetric thickness are also rewarded with higher amounts of WTF.

Achievements and projects

The protocol was launched on the Binance Smart Chain (BSC), which was chosen for its low gas costs, stable APY farms, and vibrant community. Among these stable farms, Waterfall DeFi showcased its first product BUSD Falls, a portfolio that combines two BUSD loan vaults, Alpaca and Venus, where the platforms feature high locked total value, stable coin liquidity and a Durable APY.

In the near future, Waterfall intends to introduce more types of products into its portfolio, such as LP Tokens, Leverage Products, etc. to provide diverse options to the community. Additionally, cross-chain compatibility, which would include products on Ethereum (ETH), Solana (SOL), Avalanche (AVAX), Polygon (MATIC), is also on the roadmap.

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