Struct Finance has made available its interest rate vault and “tranching” mechanism, a decentralized finance (DeFi) platform that enables investors to exchange customized structured financial products tied to cryptocurrencies.
According to the recent press release, the company will use a variety of tokens, tokenized derivatives, vaults, and pools permissionlessly to create new products that are specifically suited to the risk tolerance of the investor.
Using a novel technique known as “tranching,” the new interest rate products “allow anyone to split and repackage the risk of any yield-bearing DeFi assets in different parts to fit their risk profile.”
The products are a single vault divided into two tranches, or sections, with contrasting returns. The first tranche is a fixed-return one for conservative investors seeking steady returns. For investors with a larger risk tolerance, there is also a variable-return option.
The press statement stated that the yield from the underlying asset flows into the fixed tranche to assure predictable returns and the remaining amount is assigned to the variable tranche, which receives improved exposure to the underlying yield-bearing asset.
According to the news release, “The lack of fixed-yield returns in cryptocurrency has been a deterrent to entry for both larger institutions and smaller players with more conservative risk appetites.” Given that the Struct Factory permits permissionless tranching of liquidity pools, fixed rate returns might become sufficiently prevalent to tame the erratic and volatile returns of Web3.