In the financial world, a tranche represents a product split that carries specific features like risk, yields, duration. They are often arranged together to create pools of diversified products or a basket of investments with similar characteristics (risk-return related).
Based on this concept, Idle launched its own tranches primitive: Yield Tranches.
Each tranched asset has its own yield source, with two risk-adjusted investment profiles (Senior and Junior).
Taking the stETHYield Tranche based on the Instadapp stETH pool as an example, stETH deposited into the Senior and Junior classes of that Instadapp-based strategy are aggregated into a single pool and then deployed into the Instadapp Lite market.
Tranches allow users to enjoy DeFi yields with built-in protection on deposits for Senior depositors or boosted yield for Junior ones.
Users can decide the strategy according to their risk profile: they can deposit funds into two different tranches (Senior or Junior) in exchange for a token indicating their claim.