Project Details
What are you building?
Our goal is to empower the DeFi credit market with robust yield automation and hedging instruments, facilitating its expansion and establishing a foundation for sustainable financial ecosystems. The financing of RWAs has emerged as a theme in the DeFi space, with lending protocols offering loans originated in the traditional way, based on borrower underwriting rather than backed by crypto assets pledged as collateral. Credit risk protection is critical for the mass adoption of this branch of DeFi.
That’s the reason why our focus is to build a resilient risk-adjusted product suite on Optimism, starting from Yield Tranches: a new DeFi primitive that allows to segment yields and risks on any DeFi yield source, catering to a diverse range of users by offering two risk-return profiles, Senior and Junior:
Senior YTs withhold part of the yield generated in exchange for funds coverage, given by the Junior class’ liquidity. The retained yield is then distributed to the Junior YT. Senior holders benefit from a full spectrum coverage on smart contracts and financial risks related to YTs themselves, underlying yield sources, and all their dependencies.
Junior YTs, on the other hand, provide greater returns, as they are compensated by the Senior counterparty with a higher share of yield for the coverage provided. At the heart of Yield Tranches design, there is a much broader thesis on the shifting DeFi lending market. It is formed on the core belief that, over the coming years, the global debt activity will move on-chain, making every transaction and loan programmable and auditable – as the world’s debt moves on-chain, liquidity providers will have the essential need to manage their exposure to it.
At Idle DAO, we want to build the marketplace to facilitate this, by bringing diversification to the world’s on-chain lending and borrowing activity and allowing liquidity providers to customize, leverage or hedge their yield portfolio. Idle is a decentralized protocol and DAO that steps up DeFi by reimagining how risk and yields are managed. It does so by aggregating the best-performing returns on the Best Yield vaults and by offering risk-adjusted solutions with Yield Tranches