In traditional finance, structured finance is a term that describes the process of designing and providing various types of financial goods and services in order to fulfill intricate monetary demands. Large businesses that need to find solutions to complicated financial problems that cannot be met by the current supply of financial instruments often make use of this strategy.

It encompasses a diverse variety of pursuits as well as goods. The method results in the creation of bespoke solutions that are geared toward satisfying the needs of the customer in terms of financing, liquidity, risk transfer, and so on. The terms asset-backed securities (ABS), commercial mortgage-backed securities (CMBS), residential mortgage-backed securities (RMBS), and collateralized debt obligations (CDOs) are all examples of products that may be found within the field of structured finance.

In structured finance, when a single asset or a pool of assets is split into several portions, referred to as tranches, depending on their amount of risk and return, tranches are a common tool that is used. The smaller the tranche, the greater the chance for loss, but the higher the possible return; conversely, the higher the tranche, the less danger there is, but the lower the potential return. Each tranche has its own unique amount of risk and reward. Investors may profit in a number of ways from the use of tranches, including diversification, flexibility, and customized risk and return.

Tranchess is a crypto protocol that was conceived as a result of the widespread usage and several advantages of tranches. It is a tracker of assets that improves yield and offers a variety of strategies that balance risk and reward. The purpose of the protocol is to generate a one-of-a-kind risk-return matrix from a single primary fund that monitors a particular underlying asset or a basket of crypto assets, such as Bitcoin, Ethereum, or Binance Coin (BNB). The goal of Tranchess is to provide users of DeFi with asset allocation flexibilities, which will enable these users to better manage their assets and increase the amount of return they get on those investments.

Tranchess overview

Currently, the Tranchess protocol can be found on both Ethereum and BNB Chain. It primarily provides two services: liquid staking and Tranche. These investments are made possible by the use of four tokens, which are designated as QUEEN, BISHOP, ROOK, and CHESS, respectively. The purpose of this article is to offer readers an in-depth review of the Tranchess protocol and investigate how its many components work together to provide customers with one of the most popular conventional financial services available on the cryptocurrency market.

Liquid staking

tranchess liquid staking

Source: Tranchess

Liquid staking is a mechanism that allows holders of cryptocurrencies to stake their assets while still maintaining their liquidity. The Tranchess protocol facilitates this procedure. Tranchess maintains validator nodes on each chain in order to assist the process of offering liquid staking for Ethereum and BNB Chain. This service is provided by Tranchess. On the BNB Chain, Tranchess operates its own nodes, whereas, on Ethereum, it works with a number of other node operators to deliver its services.

When a user stakes ETH on Ethereum or BNB on BNB Chain, the user obtains QUEEN ETH or nQUEEN (QUEEN ETH or QUEEN BNB), respectively. These are referred to as QUEEN tokens. The QUEEN tokens are a liquid staking derivative token that accrues staking incentives, while qETH can work as collateral for external DeFi protocols, and nQUEEN can operate as collateral on Tranchess. The QUEEN tokens may also be used as collateral on the Tranchess platform.

There is a protocol cost associated with each liquid staking derivative token. The staking incentives for qETH are subject to a protocol fee of 10%, which is distributed equally among the Tranchess protocol and the node operators. There is a 20% cost associated with nQUEEN, of which half is given back to veCHESS holders in the form of the weekly rebate, while the other half goes into funding the protocol. The protocol puts the fees toward operations, maintenance, and other technological expenses, among other things. There is no set minimum amount required to stake in either nQUEEN or qETH.

Liquidity provision is one of the possible uses that may be found with QUEEN assets. Trading fees may be earned by users who participate in the Balancer qETH-WETH pool and the Aura qETH-WETH pool by providing liquidity for qETH. Users who have nQUEEN accounts may earn trading fees by depositing assets in the Tranchess nQUEEN-BNB pool. In addition, CHESS tokens are awarded to every QUEEN-pool as a kind of prize; more information on CHESS can be found later in this article. (Note that LPs on Balancer get CHESS and veBAL; however, the CHESS is not given to LPs but rather utilized for the bribery process on Hiddenhand.)

Tranche

tranchess mechanism

Source: Tranchess

Tranchess offers a wide variety of risk-return strategies, with the QUEEN fund being its primary investment instrument. Users may stake their respective tokens in the main fund on BNB Chain in order to get a QUEEN derivative token. These tokens are denoted by the following prefixes: nQUEEN for BNB, bQUEEN for BTCB, and eQUEEN for ETH. The primary fund that operates on Ethereum has one underlying asset-specific pool, which is presently ETH. This pool allows users to stake the appropriate token in exchange for qETH. Users are encouraged to stake with the fund(s) since doing so allows them to keep their exposure to the underlying asset while also earning staking incentives, cultivating CHESS, and having the ability to divide the QUEEN derivative token into two products with distinct risk matrices, namely BISHOP and ROOK.

BISHOP is the tranche with the lowest risk and the lowest return, and it was meant for investors with a more conservative investment strategy. By providing holders of ROOK with liquidity for their leveraged holdings, it is able to provide larger yields on stablecoins pegged to the BUSD currency. The interest rate that BISHOP holders on BNB Chain get is calculated using a seven-day moving average of Venus's BUSD lending rate. This rate is provided by Venus. The interest rate that holders of BISHOP on Ethereum get is calculated based on a seven-day moving average of the loan rate for USDC provided by Compound and Aave. Holders of BISHOP get staking benefits in the form of CHESS, and nBISHOP on the BNB Chain is entitled to a part of the staking rewards as well. In addition, holders of BISHOP tokens may LP their tokens to increase the number of trading fees and CHESS they receive.

ROOK is the greater risk, higher return tranche that is aimed at investors that are more willing to take risks. Investors take advantage of it so that they may take leveraged positions on the asset of their choosing. At the time of writing, the leverage ratio for BNB is 1.74X, the leverage ratio for BTCB is 1.58X, and the leverage ratio for ETH is 1.76X. However, the leverage ratio may alter depending on the fair value and can theoretically range anywhere from 1.5X to 3X. The holders of ROOK positions are able to fund their positions by borrowing cash from BISHOP. The financing rate will always be tied to the funding rate of Venus. When holders stake their nROOK on the BNB Chain, they are rewarded with QUEEN.

The technique known as fair value (NAV) is used by Tranchess to differentiate between the present trading price of BISHOP and ROOK tokens and their actual worth in the system. The fair value begins at one and gradually grows over time based on a computation that makes a comparison between the current market price of the QUEEN token's underlying assets and the price of the QUEEN token. The fair value begins at one and gradually increases over time. To be more specific, the amount of interest received from ROOK tokens is added to the total amount of the BISHOP token's fair value. The fair value of ROOK tokens is calculated by deducting the profits from the interest that was paid to BISHOP tokens.

CHESS and veCHESS

CHESS

The CHESS token functions as the governance token for Tranchess. It is possible to acquire it by staking QUEEN, BISHOP, and/or ROOK, or by supplying liquidity. There are a total of 300 million CHESS available, with 116 million (or 40%) now in circulation. The tokens will be distributed as follows: 150 million will go toward community incentives, 60 million will go toward the core team, 45 million will go toward future investors, 30 million will go toward the ecosystem/treasury, and 15 million will go toward seed investors.

The following is a list of the vesting schedules for allocations of CHESS tokens: Tranchess will see the disbursement of 120 million community incentives, which is 80% of the total of 150 million. Around 52% of the CHESS community incentive funds, or 78 million dollars, will have vested by the 25th of May, 2023. Every ten to twenty weeks, the community rewards are reviewed and updated by the team in case new products are introduced that come with extra incentives. The smart contract stores the token allocation that will be given to future investors, but it has not yet been vested. There is no vesting timeline associated with the ecosystem allocations. While seed investors were subject to a three-month locking period followed by a twenty-four-month linear vesting schedule, key team members were subject to a six-month locking period followed by a thirty-six-month linear vesting schedule.

It is important to note that at the time of writing, 41.5 million CHESS (representing 35 percent of the circulating supply) are locked, with an average lock length of 8.3 months. The Tranchess bridge makes it possible for CHESS and veChess to be transferred across the Ethereum and BNB networks.

veCHESS

veCHESS is necessary for the use of the CHESS token in all of its applications. To begin, it may be used to cast a vote on a weekly basis for the Alpha split between BISHOP and ROOK holders, as well as CHESS emissions among the various pools and funds. Second, those who have veCHESS accounts are eligible for a weekly reimbursement that is equal to half of the fees that are collected inside Tranchess (with the exception of the costs for gas). The remaining fifty percent is stored in the Tranchess treasury and will be used in the future for further cooperation with other protocols and liquidity bootstrapping. Thirdly, veCHESS makes it possible for users to increase their revenue from CHESS staking.

In order for users to get veCHESS, they need to lock their CHESS tokens. The period of the lockdown may be anything from one week to one year, and the amount of veCHESS tokens that are granted depends on how long the lockup is in place.

Governance: The Tranchess protocol provides users with a platform for community governance in which they may take an active role in the decision-making process. Users' ability to cast votes is proportional to the number of veCHESS they currently possess. The forum for Tranchess is divided into four categories, each of which is intended to facilitate a distinct kind of conversation:

Proposal: A category for suggesting new features, goods, technological upgrades, and other pertinent issues is referred to as a "Proposal." Members of the Tranchess community are encouraged to post here to share their thoughts, ideas, and recommendations with the rest of the community.

Announcement: The Tranchess development team will use this category to announce any new information or notices pertaining to the project here. This covers announcements regarding new collaborations, upgrades to the platform, and many other significant pieces of news.

General Discussion: an open forum for discussions on any and all subjects that are connected to Tranchess or DeFi in general. In this forum, members of the community may talk about anything, from the token economy and trading tactics to industry news and trends on a larger scale.

Technical Support is an area on the site where visitors may post inquiries and look for solutions to any technical problems they are experiencing. Members of the community may come here to obtain assistance with problems like those related to wallet connection, the operation of smart contracts, and other technical concerns.

The competitor's landscape

There is competition for Tranchess from other protocols that are seeking to establish on-chain risk tranches. Defi protocols:

A peer-to-peer risk adjustment mechanism is what Saffron Finance is all about. Users are able to personalize their risk and return profiles by choosing the level of exposure they want to have to the underlying platforms. The governance token, SFI, currently has a market cap of four million dollars.

BarnBridge is a decentralized, open-source, fixed-income protocol that enables users to earn a fixed return on their deposits by exchanging variable annual percentage yields (APYs) from various money markets for a fixed APY. Both the TVL and market valuation of the BOND token are impressive for BarnBridge: $2.4 million and $42 million, respectively.

88mph is a product with a fixed period and a fixed interest rate return that operates as a middleman between users and third-party lending protocols with fluctuating interest rates. Bonds with a fixed interest rate and bonds with a flexible interest rate are the two options available to users. 88mph has a total value in tokens (TVL) of $900,000, and the market cap of the MPH token is $2.7 million.

Low deposit interest rates, asset lock-ups for lengthy periods of time, and a lack of liquidity are some of the difficulties that risk-tranche procedures must contend with. By taking advantage of the greater yield offered by LSD collateralization, constructing liquidity pools inside its structured products, and enabling users to make purchases in USDC, Tranchess has developed a solution that increases user returns while simultaneously lowering their exposure to risk. As a result of the development of liquidity-collateralized derivatives, there will be an increase in the amount of capital that flows into structured funds. This will make structured funds a primary target for the allocation of capital, and the structure of structured funds will become more varied.

>>> Read more: The Truth About Ethereum Staking Yield

Future developments

tranchess roadmap

Source: Tranchess

Tranchess, which was first released in 2021, has continued to make major leaps in its development ever since it was first released. Important changes were made to Tranchess in 2022, the most significant of which was the release of Tranchess V2. In preparation for the future, Tranchess has established various milestones for the development of both its products and its company. Tranchess intends to broaden the scope of its product offering in the near future by monitoring a greater number of underlying assets and delivering more fund structures by means of an increased number of synthetic derivatives. Additionally, the group intends to broaden the scope of applications for the CHESS token. Tranchess intends to engage with other protocols, extend to other chains, and further grow up the team with an emphasis on technology and marketing from the point of view of business development.

Veterans in the fields of blockchain technology and finance are providing assistance for the Tranchess protocol. Members of the core team have experience working in conventional areas of finance, such as investment banking, asset management, and hedge funds, among other related fields. Members of the technical team have worked with industry leaders in the past, including Google, Microsoft, and Meta (previously Facebook), giving them extensive knowledge in the field of network security for centralized exchanges and DeFi protocols.

Danny Chong, the company's founder and a graduate of Nanyang Technological University, has more than 16 years of experience working in the banking business. He has held positions at Credit Agricole CIB, where he was responsible for developing new financial products and leading the expansion of sales, employees, and digital operations in the Southeast Asia area.

Because cybersecurity breaches are so common in the cryptocurrency business, it is essential for teams to take preventative measures to protect themselves. The fact that Tranchess has been subjected to six audits demonstrates how seriously it has taken the aforementioned strategy. PeckShield was the organization that carried out the audits on June 28, 2021, September 10, 2021, December 24, 2021, May 20, 2022, and October 30, 2022. Certik was the organization that carried out the audit on June 3, 2021. The Tranchess protocol was subjected to a series of audits, the primary focuses of which were on numerous areas, including smart contracts and general safety.

The initial round of $1.5 million was disclosed by the firm in July 2021, with participation from a variety of investors, including Binance Labs, Longhash Ventures, IMO Ventures, and others. The round was headed by Three Arrows Capital and Spartan Group. In addition, Tranchess has reserved 45 million CHESS tokens, which is equivalent to 15% of its total supply, for use by potential investors in the future.

Conclusion

The idea of tranches served as the basis for the development of the Tranchess cryptosystem, which offers several risk-reward options to investors. It intends to do this by developing a one-of-a-kind risk-return matrix from a single primary fund that follows certain underlying assets or a collection of crypto assets. The protocol runs on Ethereum and the BNB Chain. It provides liquid staking and Tranche via a total of four different tokens: QUEEN, BISHOP, ROOK, and CHESS. The goal of Tranchess is to provide users of DeFi with the freedom to allocate their assets, which will allow for improved investment management and the maximizing of returns.

The Tranchess team is made up of blockchain and financial industry professionals that have worked in conventional finance, investment banking, asset management, and hedge funds, among other fields. Multiple security reviews have been performed on the protocol to guarantee that the assets of its users will be protected at all times. Other risk-tranche DeFi protocols, such as Saffron Finance, BarnBridge, and 88mph, are Tranchess's primary competitors in this industry. Its future ambitions include growing the number of use cases for CHESS tokens, moving to other chains, partnering with other protocols, and expanding the product offerings it now provides.

Disclaimer:
This article is intended for and only to be used for reference purposes only. No such information provided constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific name.

Tranchess: Built for sophisticated risk and reward