Structured Credit Vaults
Structured credit vaults enable tranching on TrueFi, creating the opportunity for lenders to participate in distinct “slices” of a given vault, each with their own risk-reward profile.
Demo: Strucuted Credit Vaults
Structured credit vaults also introduce the concept of a capital formation period. Lenders can commit capital to a smart contract, with assurances that if the vault does not meet certain requirements (e.g. reach certain size or subordination ratios) within a given time period, funds will be returned to lenders with no fees incurred.
Structured credit vault can be created with up to three tranches, meaning they can also support two tranche or unitranche deals.
Let's take a vault with 3 tranches: A/B/C, with A being most senior.
In this example,
Tranche Ahas a fixed interest rate of 6%,
Tranche Bhas a fixed interest rate of 10%, and
Tranche Creceives any excess funds in the vault after
Tranches A and Bhave been paid amounts owed.
Tranche Ahas $6mm in principal has a 35% attachment point, subordinated by
Tranche B($2.5mm principal), and
Tranche C($1.5mm principal).
Over the life of the vault, each tranche linearly accrues interest owed based off its coupon rate. For instance, after 30 days
tranche Awith 6% interest rate is owed $6.03mm
=$6mm*[1+(6%*(30/365))]and after 365 days it is owed $6.36mm
When funds are repaid to the vault, they are distributed by a waterfall where the most senior tranche's amount owed must be repaid before the subordinated tranche can withdraw. The following illustration shows how such a vault would handle various scenarios:
Illustrative scenarios for a Structured Credit Vaults
During the capital formation period, lenders can commit funds to one or more tranches of the vault, with assurance that the vault smart contract will return funds if certain requirements are not satisfied. If requirements are not satisfied by the end of the period, then capital is returned to lenders with no additional fees.
In this way, lenders can stipulate that deals must reach a specific minimum size and/or with specific ratios in order to go live.
For example, a structured credit vault may launch with a capital formation period of 30 days, with requirements that the total deal size is at least $5mm with at least 30% of funds in the junior tranche. If the vault does not meet this criteria at day 30, the vault will return funds to lenders and move to 'Closed' status.
Portfolio managers ("PMs") can define lenders access rules / restrictions for each individual tranche. Like other portfolios on TrueFi, PMs can set their own policies for permissioned or permissionless pools.
For example, a PM could make the equity tranche open to only one specific wallet address, while enabling all ID verified addresses to participate in the junior and senior tranches.
Portfolios pay a standard protocol fee of 50 bps (0.50%) per annum to the TrueFi DAO treasury. Fees accrue block-by-block and are paid upon each smart contract interaction (lend/withdraw/disburse loan/repay loan).
The example below illustrates how the protocol fee works:
Additionally, PMs can set an optional Portfolio Fee. Portfolio Fees are paid to the PM, and can be configured such that they are accrued linearly over time, or paid as a flat fee at time of deposit and/or withdrawal.