# Tranche Vault > **⚠️ Implementation Status: PLANNED** > > The Tranche Vault (sPP/jPP yield stratification) described in this document is part of the Phase 2 roadmap. Current release includes only the Prime Vault (PP) functionality. Tranche Vault will be deployed as a separate contract layer on top of PP. ## Design Motivation The underlying asset yield in the PP is approximately 6% APY. This is a real, exogenous yield, yet it lacks appeal in the DeFi market. **Core challenge**: How to offer higher yields to risk-seeking users without increasing underlying asset risk? **Solution**: Yield Tranching — Allowing some users to bear greater risk in exchange for leveraged returns. ## Tranche Vault Structure Tranche Vault is an independent contract layer built on top of PP, splitting PP's yield into two tranches: ``` ┌─────────────────────────────────────────────────────────────────┐ │ Tranche Vault │ │ (Independent Contract, Holds PP as Assets) │ ├─────────────────────────────────────────────────────────────────┤ │ │ │ Users deposit PP │ │ │ │ │ ↓ │ │ Choose share class │ │ │ │ │ ┌────┴────┐ │ │ ↓ ↓ │ │ sPP jPP │ │ Senior Junior │ │ │ │ • Fixed 4% yield* • Floating yield (all residual) │ │ • Senior repayment • Subordinated repayment │ │ • Lower risk • Higher risk, higher upside │ │ • No governance • Can stake to earn esPAIMON │ │ │ │ * The 4% fixed rate is a governance-adjustable parameter. │ │ Rate changes require Medium Risk governance approval and │ │ apply only to new deposits after the change takes effect. │ │ │ └─────────────────────────────────────────────────────────────────┘ ``` ## Yield Distribution Mechanism **Allocation Priority**: sPP receives fixed returns first, while jPP receives the remaining portion. ### Formula Let V represent the total value of PP held by the Vault, r\_s denote the proportion of sPP, r\_j = 1 − r\_s denote the proportion of jPP, and Y\_total denote the total yield of PP. * Y\_sPP = 4% (Fixed) $$ Y\_{jPP}=\frac{Y\_{total}-Y\_{sPP}\cdot r\_s}{r\_j} $$ ### Scenario Analysis (Assuming sPP:jPP = 70:30) | Total PP Return | sPP Yield | jPP Return | Explanation | | --------------- | --------- | ---------- | ------------------------------------------- | | 10% | 4% | 24% | Bull Market, jPP Gains Significant Leverage | | 8% | 4% | 17.3% | Normal preference | | 6% | 4% | 10.7% | Base Scenario | | 4% | 4% | 4% | Break-even point | | 2% | 4% | -2.7% | jPP begins to incur losses | | 0% | 4% | -9.3% | jPP bears all downside risk | **Key Features**: jPP provides a safety cushion for sPP, absorbing downside volatility; in return, jPP gains leveraged returns during uptrends. ## Epoch Settlement Mechanism PP's NAV fluctuates continuously, while Tranche Vault employs fixed-cycle settlements: ``` Epoch 1 Epoch 2 Epoch 3 [ 7 days ] [ 7 days ] [ 7 days ] │ │ │ ↓ ↓ ↓ Compute NAV Compute NAV Compute NAV Change Change Change │ │ │ ↓ ↓ ↓ Distribute Distribute Distribute Yield (sPP first) Yield (sPP first) Yield (sPP first) Residual to jPP Residual to jPP Residual to jPP ``` ### Settlement Steps 1. At the end of each Epoch, calculate the change in PP NAV held by the Vault 2. Calculate sPP's earned yield: 4% ÷ 52 × r\_s × V\_s 3. The remaining amount (positive or negative) is fully allocated to jPP 4. If the remainder is negative, deduct it from the net value of jPP shares ## Entries and Exits ### Deposit | Operation | Rule | | --------- | -------------------------------------------------------- | | PP → sPP | Anytime, calculated based on current Vault net value | | PP → jPP | At any time, calculate shares based on current Vault NAV | ### Redemption | Operation | Rules | | ---------- | --------------------------------------------- | | sPP → PP | Queued redemption, **with priority over jPP** | | jPP → PP | Queued redemption, lower priority than sPP | | Staked jPP | Must first unstake | ### Priority Repayment Implementation ``` Redemption Queue Processing Order 1. Process all sPP redemption requests 2. If liquidity remains, process jPP redemption requests 3. Any excess enters the waiting queue ``` ## Risk Control: Junior Layer Safety Buffer **Issue**: If the jPP ratio is too low, it cannot provide sufficient protection for sPP. **Mechanism**: Minimum Junior Ratio Constraint | Parameters | Value | Description | | -------------------- | --------------------------- | -------------------------- | | Target Junior Ratio | 30% | System Design Target | | Minimum Junior Ratio | 20% | Mandatory Lower Limit | | Trigger Action | Pause new sPP deposits | Prevent excessive leverage | | Resumption Criteria | Junior ratio returns to 25% | Includes buffer range | ### Extreme Scenario If PP NAV continues to decline, causing jPP NAV to reach zero: 1. jPP holders lose all principal 2. sPP begins directly bearing PP downside risk 3. At this point, sPP effectively degrades to a standard PP exposure 4. Emergency state is triggered, suspending all new deposits ## Integration with Governance System **Incentive acquisition path (non-governance)**: jPP staking incentives → esPAIMON (vesting) → PAIMON. Governance participation requires **PAIMON locked into vePAIMON**. ``` ┌─────────────────────────────────────────────────────────────────┐ │ Full Path from jPP to Governance │ └─────────────────────────────────────────────────────────────────┘ jPP Holder │ ↓ Stake into jPP Gauge │ ↓ Earn esPAIMON (mining rewards, non-transferable) │ ↓ Vest (90-day linear) (to unlock as PAIMON) │ ↓ PAIMON (transferable) │ ↓ Lock │ vePAIMON │ ├──────────────────────┐ ↓ ↓ Gauge Voting Protocol Fee Share (determines emissions) ``` ## Comparison with Failure Modes | Dimension | Terra/Anchor | Paimon Tranche | | -------------------- | ---------------------------- | ---------------------------------------------------- | | Revenue Sources | Token Subsidies (Endogenous) | Underlying Assets + Tiered Amplification (Exogenous) | | High-Yield Mechanism | Money Printing | Risk redistribution | | Downside Protection | None | jPP as a Safety Net | | Liquidation risk | Death spiral | No Lending, No Liquidation | | Worst-case scenario | Systemic Collapse | jPP becomes worthless, sPP degrades to PP |