# Tranche Vault (Phase 2)

{% hint style="warning" %}
**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)](/paimon.finance/architecture/prime-vault.md) — ERC-4626 RWA fund
* [Pre-IPO SPV Tokens (pSPCX / xSPCX)](/paimon.finance/products/pre-ipo-spv.md) — SpaceX SPV tokenization
  {% endhint %}

## 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            |


---

# Agent Instructions: Querying This Documentation

If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question.

Perform an HTTP GET request on the current page URL with the `ask` query parameter:

```
GET https://paimon-finance.gitbook.io/paimon.finance/products/products.md?ask=<question>
```

The question should be specific, self-contained, and written in natural language.
The response will contain a direct answer to the question and relevant excerpts and sources from the documentation.

Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.