Interest Rate Tranches

Overview

As a cornerstone of the Nexara protocol, our Interest Rate Tranches serve as a foundational layer for the tranching of yield-bearing positions, transforming them into instruments that offer both fixed income and variable yield options.

Tranching Mechanism

Tranching is a sophisticated mechanism that redefines the risk profile of investments. It systematically prioritizes the return of cash flows from the invested assets, crafting a structured payout system that benefits different types of investors according to their risk tolerance and investment goals.

Fixed Tranche

Investors in the fixed tranche are assured a prioritized return, receiving a steady stream of fixed cash flow. This tranche is ideal for investors seeking stability and predictability in their investment returns.

Variable Tranche

Conversely, the variable tranche caters to those seeking higher potential returns through increased risk. Investors in this tranche benefit from amplified returns, gaining leveraged exposure to the performance of the underlying assets.

Yield Distribution

The distribution of yield in tranching follows a precise waterfall mechanism, which meticulously orders the return of yield from the underlying positions:

1. Fixed Income Payments: Initially, the yield generated is allocated to satisfy the fixed income commitments to investors in the fixed tranche.

2. Principal and Fixed Rate Return: At the conclusion of the investment period, the principal amount, along with the agreed fixed rate, is returned to the fixed-income tranche investors.

3. Variable Tranche Distribution: Any remaining returns are then distributed to the investors in the variable tranche, allowing them to potentially reap higher benefits depending on the performance of the underlying assets.