Our first primitive, Interest Rate Tranches, serves as a settlement layer for the tranching of yield-bearing positions to create a fixed-income and variable-yield instrument.
Tranching an underlying yield-bearing position changes how the yield is distributed. This distribution follows a waterfall mechanic, which orders how the yield from a position is returned.
At the end of the investment period, the principle and fixed rate is returned to investors who subscribe to the fixed-income tranche before the remainder is passed on to investors who subscribe to the variable tranche.
This distribution ultimately splits an investment position into slices, with financial terms suitable for specific investors. It also benefits the ecosystem by creating financial instruments with comparatively less risk than the underlying yield-bearing position.
When the smart contract is created, a subscription period for investors to deposit into the tranche they want exposure to will begin, and the deposit will be queued. Deposits within tranches will be invested into the underlying yield-bearing position. These funds will stay in the position until the predetermined maturity period.
As part of our risk assessment process, the Struct Finance Team carefully evaluates any protocol we want to integrate with our interest rate product.
Struct Interest Rate products involve two base assets and one protocol at a time, plus some degree of leverage if the levels between the two tranches are not equally set or distributed.