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What is Waterfall DeFi?


The majority of DeFi applications today require invested capital in order to unlock functionality ranging from DeFi borrowing and lending to being a liquidity provider and trading assets. Across existing DeFi protocols, there is an approximated total value locked (TVL) of $100 billion USD and that number continues to rise with every passing month.

But although DeFi seems like a more attractive investment compared to traditional banking – with better interest rates and lower barriers to entry – it also comes with a certain degree of risk. ‘Decentralised Finance’ means your capital is controlled by smart contracts, without the interference of a central party. Put simply, code is king. And while this allows for higher efficiency and lower operational costs than TradFi (Traditional Finance), it also carries technological risk as the contracts are only as good as the underlying code – which can be exploited or hacked.

There are additional associated risks associated with DeFi protocols. Being decentralised means there is a chance of compliance violations as products and protocols are not regulated or insured, so platform users have to be ready for a variety of outcomes. However, the most important risk, and the crux of this article, is to do with your assets. Namely, investors have to be aware that the assets they provide as liquidity, are volatile and may see their value drop significantly – to liquidation in extreme cases. If recent times are any indication, bear markets are sudden and unpredictable and any coin holder would undoubtedly appreciate some reassurance.

That’s where Waterfall DeFi steps in, a platform that offers an optimized yield farming strategy via auto risk-adjusted tranching – a tool to hedge your capital during both bear and bull markets.



As the name suggests, Waterfall’s cash flow payments are paid in a ‘waterfall’ like manner, leading from one level to another. Specifically, it does this through varying levels of tranches to diversify your portfolio and segment it into profiles with customised risk and return rates and maturity, giving you the best DeFi exposure.

This structured and sequential investment strategy is as follows: the senior tranche is paid first and is considered to be the safest option, but carries lower yield returns. On the other hand, the junior tranche is paid last, but is the highest risk and generates higher yield leading to high leveraged returns. A classic example of the higher the risk, the higher the reward.

This system is still effective even when there is a capital loss on the initial investment. The same distribution procedure will be used where the senior tranche is paid first and the junior tranche last, giving steady returns. It also helps that tranches are an established instrument in TradFi. It’s something TradFi users are aware of, thus allowing Waterfall to pull more people onto its platform.


Waterfall is a unique product that few competitors can compare to. It unlocks another level of investment by providing users with a ‘pool of yield generating assets’ rather than a single asset which other projects have focused on. This feature releases the true potential of tranching by introducing correlation into the picture. Investors now have the power to control which yield farms they participate in and the risk they are taking. All in all, Waterfall allows for investors with differing experience and appetites for risk to enter the space with an organized plan to generate returns.

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