Overview

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Exponent Tranching splits one yield asset into two investable tranches with different risk and return profiles.

• Senior LP receives more protected exposure to the underlying yield asset.
• Junior LP provides first-loss protection to Senior and receives a higher share of upside in return.

The market tracks the underlying SY balance, tranche NAV, available Junior coverage, current utilization, and the active return curve. When the market syncs, it reads the latest SY exchange rate and applies gains or losses through the tranche waterfall.

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How It Works

Depositors choose whether to enter the Senior or Junior tranche. A deposit mints tranche LP tokens representing a claim on that tranche’s effective NAV. Tranche LP tokens are standard SPL tokens. They can be transferred between wallets and can be listed or traded by external venues. The market does not require LP tokens to stay with the original depositor. Senior receives a more protected asset profile because Junior capital absorbs losses first. Junior takes that first-loss risk and receives a larger share of upside when its protection capital is more valuable to the market. The return split is driven by utilization. Utilization measures how stretched Junior protection is relative to the market’s minimum coverage requirement. Higher utilization means Junior protection is scarcer, so the return curve allocates more upside to Junior. Tranching supports point curves and utilization-guided curves. Both curve types map utilization to the Junior share of Senior-side residual yield.

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Market States

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Normal State

In the Normal State, the market accepts deposits and withdrawals subject to coverage, capacity, and pause checks. Yield is distributed according to the current return curve. This is stored onchain as Active.

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Recovery Period

The Recovery Period can begin after a covered negative NAV event. It gives Junior time to recover part or all of the covered loss if the underlying asset recovers. During the Recovery Period, Senior withdrawals are paused and Senior temporarily stops receiving yield. Junior withdrawals may still be allowed if they do not reduce coverage below the market’s required protection level. This is stored onchain as FixedTermRecovery.

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Settlement

Settlement is the transition that finalizes a covered loss after the market has already applied the NAV waterfall during sync. It clears the Junior impermanent-loss balance, resets the recovery timer, and returns the market to normal operation. Settlement is an accounting transition, not a separate persistent onchain enum.

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Liquidation Threshold

The Liquidation Threshold determines when the Recovery Period is skipped. If utilization reaches the market’s liquidation threshold, the market applies the settlement transition instead of waiting for recovery.

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Fee Structure

Tranching markets can charge fees on yield, Junior protection premium, deposits, and withdrawals. Fees accrue as LP shares and are later minted to the configured protocol fee recipient. See Fee Structure for the field-level mapping and accrual behavior.

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SDK Class

The Tranching SDK exposes a single main class:

• TranchingMarket - Loads market state, derives market PDAs, builds deposit and withdraw instructions, and exposes read helpers for NAV, capacity, LP prices, APY, and Senior protection.

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Getting Started