Tranching
Last updated
Last updated
Tranching is a technique used to manage the price risk of crypto-assets. Essentially, it involves depositing an asset to create multiple Tranche bond assets, each with a distinct level of risk. Irrigation separates these tranche assets in a 20/30/50 fashion as follows:
As shown above, there are three tiers to a tranched asset:
A-Tranche (20%) is considered stable
B-Tranche (30%) is middle-tier
Z-Tranche (50%) has potential gains and losses based on underlying asset performance.
*All tranching is done through the Farmer's Market.
When utilizing Irrigation to tranche your assets, the underlying asset is divided into incremental assets known as "droplets." These droplets effectively track the value of the original asset, maintaining the same worth as if no tranching had occurred. However, the difference lies in the fact that the user now possesses multiple droplets, each valued at 1 USD, which collectively equal the price of the underlying asset.
Tranche droplets can be thought of as individual bonds, each holding a unique maturity date based on the time the bond was executed.
Irrigation allows for the buying and selling of tokenized debt and bonds in the form of Droplets. Once the debt or bonds are tranched into droplets, swaps can be made seamlessly from one bond or debt instrument to another while maintaining the base underlying value.
A-Tranche and B-Tranche tokens acquired from the Farmer’s Market and Bond Tokens acquired from Bond Protocol can also be bought and sold versus single asset tokens such as DAI, USDT, or USDT using the Auction Market.
Additionally, there might be opportunity to repurchase a comparable position later if the user wishes to return to their original position. This possibility would be based on available auction listings.
