Yield Tranche (YT) Strategies

What are Yield Tranche (YT) Strategies?

Yield Tranche (YT) represents the right to excess future yield from a large RWA position over a specific time period. YT buyers pay a fixed upfront cost to gain leveraged exposure to variable yields, capturing unlimited upside if actual yields exceed the fixed cost, with capped downside limited to the upfront payment.

Key Benefits:

• Leveraged Yield Exposure: Access yields from much larger positions than your capital alone allows

• Fixed Cost Structure: Pay predetermined rates regardless of actual performance

• Unlimited Upside: Capture all variable yields above your fixed payments

• Capped Downside: Maximum loss is your fixed upfront payment, no liquidation risk

• Pure Speculation: No collateral management needed—just pay and profit from yield performance

How You Make Money from YT

The Profit Mechanism

• SLF provides the majority capital: Supplies most stablecoins needed for the $100M staked position

• You pay fixed upfront cost: Pay predetermined amount (e.g., $12M for 3 months on $100M position)

• You receive variable yield exposure: Capture all actual yields from the entire $100M position

• Your profit: Keep all yields above your breakeven rate (implied APR cost)

Example with $100M Position and 3-Month Term:

Scenario 1 - Expected Yield (20% APY):

Total RWA Position: $100,000,000
Your Upfront Payment: $12,000,000 
SLF Contribution: $88,000,000

Total Yield Generated: $100M × 20% = $20,000,000
Your Share of Yield: $20,000,000 (100% of excess yield)
Less: Upfront Cost Paid: -$12,000,000
Net Profit: $8,000,000

ROI: $8M / $12M = 66.7% return 

Scenario 2 - Higher Yield (25% APY):

Total Yield Generated: $100M × 25% = $25,000,000
Your Share of Yield: $25,000,000
Less: Upfront Cost Paid: -$12,000,000
Net Profit: $13,000,000

ROI: $13M / $12M = 108.3% return

Why Extreme Leverage Works for YT:

• Short duration: 30-180 day positions reduce time-based risks

• Higher effective LTV: YT strategies achieve ~90%+ effective exposure through upfront payment model

• Amplified returns: Relatively small upfront capital generates massive yield exposure

• No liquidation risk: Unlike Loopers, YT positions have capped downside at upfront cost

---

Risk Considerations

• Fixed cost risk: In worst-case scenarios, you lose the predetermined interest payments to SLF

• Yield risk: Actual RWA yields may be lower than projected, reducing profits

• Limited principal risk: Unlike traditional lending, RWA price movements don't create additional losses beyond your initial capital and fixed payments

• Maturity lock: Position is locked until maturity date; no early exit

---

How YT Strategies Work

Step 1: Position Setup

Deploy a dedicated YT vault contract for your position tied to specific maturity date (e.g., 90-day, 180-day). The system ensures complete isolation of your yield rights with transparent tracking. You pay your upfront cost to enter the position.

Step 2: Leveraged YT Generation

System uses your upfront payment plus SLF capital to create the full staked position. SLF provides the majority of capital (e.g., $88M), you provide upfront cost (e.g., $12M), creating total $100M staked exposure. All funding flows through the Standing Lending Facility (SLF) at predetermined rates.

Step 3: Yield Strategy Execution

YTHelper converts all stablecoins and RWA into staked RWA according to the yield strategy, executing the leverage loop to generate more YT exposure. The position generates yields continuously throughout the term, with all excess yields above the fixed cost belonging to YT holders.

Step 4: Maturity Management

YT positions have fixed maturity dates (unlike perpetual Looper positions). At maturity:

• System automatically unstakes the full $100M position

• Repays SLF capital ($88M) plus any fees

• Distributes net profits to YT holders, ie. $20M

• Transfers accumulated rewards (points, airdrops, etc.) to YT holders

If yields exceeded breakeven: You receive substantial profits proportional to the spread

If yields fell short: You lose part or all of your upfront payment, capped at $12M maximum

---

Yield Tranche Role in Structured Product

As a YT buyer, you're participating in Bondify's structured product as the speculation layer:

• Pay Fixed Upfront: Your $12M payment contributes to building the $100M position or purchase the yield rights from existing looping positions

• Enable Leverage for Others: Your capital combined with SLF creates the full position

• Capture Excess Yields: You receive 100% of yields above your breakeven rate

• Capped Risk Exposure: Unlike Loopers who provide first-loss capital, your maximum loss is predetermined

• No System Obligations: If yields disappoint, you simply lose your upfront cost—no liquidations, no additional liabilities

This pure speculation tranche complements the Senior (SLF) and Junior (Looper) tranches, creating a complete structured product where different risk appetites can find their optimal exposure level.