Tranche Vault (Phase 2)

Phase 2 Concept — Not Deployed

This document describes a future design. There is no Tranche Vault contract on BSC mainnet today and no sPP / jPP / esPAIMON token has been issued. The entire mechanism below (Senior/Junior split, Epoch settlement, esPAIMON staking incentive) is a design proposal subject to change.

For products that are live on mainnet today, see:

• Paimon Prime Vault (PP) — ERC-4626 RWA fund

• Pre-IPO SPV Tokens (pSPCX / xSPCX) — SpaceX SPV tokenization

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