AMA with Waterfall DeFi
On the 30th of September, 2021 at 15:00 UTC, Decentralized Club had the honor of hosting Tom Cheng, Project Lead at Waterfall DeFi, for an Ask-Me-Anything session on their Telegram page with a community of over 56,000 people. It was hosted by DC Admin, May.
The session was divided into four segments. Introductions were made in Segment 1, questions from the Twitter and website community were answered in Segment 2 and 3 respectively, and live questions from the community members in attendance were answered in Segment 4.
If you missed this event and would like to know what Waterfall DeFi is all about, you can find a recap of the interview here. Note that slight edits have been made for clarity, and links in this recap lead to images, documents, or other media.
Segment 1 - Introduction
[May]
Hello, 大家好, नमस्ते, Selamat!
My name is May and I'll be hosting the AMA with Waterfall DeFi.
Today, we have with us a guest from the Waterfall DeFi Team.
You're welcome and it's an honor to have you here.
[Tom]
Thank you :)
Happy to be here
[May]
It's our pleasure to be hosting you!
How is your day going so far?
[Tom]
Going well - haha busy
but good!
[May]
Great! 😀
Before we get into the main session, could you quickly tell us more about yourself and your job description at Waterfall DeFi?
[Tom]
Sure
Hi guys! Tom here, I am the Project Lead of Waterfall DeFi, the risk tranching protocol offering structured risk products to the DeFi space...I started my crypto journey back in 2017, my buddy was at MIT Lab and was using the lab to mine ETH, so I kinda joined on his bandwagon, and have been on and off since then.
Gradually during last year's DeFi summer, I decided to put more attention into the space, looking into yield farms and applications of derivatives, and finally, earlier this year decided to go all in, and take on the Project Lead role for Waterfall DeFi.
Before going full time in crypto I was working in management consulting, operations, and strategic planning, having worked at McKinsey & Co, before moving to a food delivery tech unicorn Deliveroo. As the Project Lead in Waterfall DeFi, I am basically in charge of handling everything and making sure Waterfall gets to become one of the projects that stands out across the space and offers what the DeFi community needs especially in terms of risk management options in yield farming.
[May]
Can't wait to know what Waterfall is all about!
I'd also like to say your project name is so calming! ☺️
[Tom]
Haha
Thanks!
[May]
You're armed with experience for this job! 😎
It's awesome!
[Tom]
Thank you - trying my best :)
[May]
You're doing great!
Let's begin with some questions about Waterfall DeFi?
[Tom]
Ready!
[May]
Okay! 🙂
Q1. Can you tell us about Waterfall DeFi and the goals that led to the creation?
[Tom]
So Waterfall DeFi is a yield aggregator protocol that aims to bring true risk tranching to the DeFi landscape.
We are built on BSC initially and would develop portfolios that include different farms. Instead of just offering a yield aggregation product, we actually would slice the portfolio into different "tranches" - essentially each tranche represents a risk/reward combo that would allow the users to select
The senior tranche would receive a reduced yield return, in exchange for first lost protection. Junior tranche would receive a much higher, leveraged yield return, but their capital is used to cover any losses suffered from the portfolio.
For example - in a portfolio with a 10% expected yield, after we slice it into 2 tranches, the senior tranche will receive a 5% return, while the rest will flow to the junior tranche. So in a perfect world, the junior tranche will get 15%
The senior tranche is essentially using their future return to buy protection against any capital lost
So in this example - if the farm underperform and the return is only 3% - seniors will still get their 5% (as they are being paid out first), while junior might see a 2% loss in their capital
Like I mentioned earlier, we are launching first on BSC, with the first portfolio focusing on 3 BUSD farms. Going forward, once we are more matured and the community is more educated about the product, we will be pushing out not just safe, sustainable return package with major farms and high TVL, but also risky leveraged products and new farms with high APY
The goal is to create different types of investment options and risk factors that users can select based on their preferences!
So how this project comes into fruition is that our founder spent over 10 years at a tier 1 investment bank, focusing on fixed income and risk tranching structured products. He realized as DeFi got more and more mature, users would demand more complex and advanced structured products to complement their investment strategy, and risk tranching products are something that could fit the community's needs.
However, there is no true risk tranching products in the space right now, and we believe by bringing the team's years of experience in TradFi and DeFi, we can bring this concept to the community and work with them to figure out what would work for DeFi
[May]
A minute for the community to digest 😁
[Tom]
haha of course, of course
[May]
The waterfall looks impressive already! I agree, this is the first risk tranching project I've come across in DeFi.
Great job!
[Tom]
Thanks!
[May]
You're welcome!
Q2. What innovative solution is Waterfall DeFi bringing to topple its competitors with similar offerings in DeFi?
[Tom]
There are a few similar concepts protocols in the space now, and Waterfall is a bit different from them due to the four following features:
1. Diversification
Our portfolio strategies package multiple DeFi assets and yield farms to ensure risk and return diversification
In the future, we aim to include more diversified assets to ensure an abundance of options for the community.
2. Clear tranche differentiation
A TVL limit is set initially for each tranche in the initial launch to ensure clear tranche differentiation
Going forward will lift the limit but will introduce dynamic reward to incentive optimal user behavior
3. Three tranche approach
We will launch with a three-tranche product, expanding the optionalities for the community.
4. Fixed income product
Will introduce a fixed income product by locking up the user deposit for a fixed period (seven days) during the deployment period
[May]
👏🏻👏🏻👏🏻
Q3. Could you talk about Waterfall DeFi Tranches?
[Tom]
Sure thing
In the Tradfi world, any structured products that have been:
(1) backed by a pool of income-generating assets;
(2) repackaged into different risk classes based on their repayment seniority known as “tranches”;
(3) then sold to investors,
would have leveraged the practice of “Risk Tranching”.
Risk tranched products are further categorized as “senior” tranches and “junior” tranches. Interest and the principal payment are first paid back to the most senior tranches as they carry the least risk. Junior tranches on the other hand generate a higher yield to compensate for undertaking a higher default risk and will receive the remaining principal and interest.
To visualize this, imagine every risk tranched product as a series of waterfalls. The senior tranches are the beginnings of the stream, starting at the mountain tops and taking their fixed percentage yield while the junior tranches will receive the remaining runoff. When the market is doing well, yield increases; like a rainstorm overflowing the river banks the junior tranches receive a higher cut as senior tranches are only entitled to their fixed percentage yield. Vice versa, when the market is in decline, yield decreases, like a drought where senior tranches remain entitled to their fixed cut as junior tranches are left with only droplets.
In short:
Senior tranche = Safer but part of the expected return is reduced
Junior tranche = Riskier but the expected return is leveraged
Let me show a graph for better visualization
https://t.me/decentralized_club/614458
[May]
Okay, 30 seconds this time for the community to read 🙂
[Tom]
lol
[May]
This is a very detailed answer, thank you!
Exactly what I imagined while reading your answer 😁
[Tom]
👍
[May]
Q4. Could you briefly talk about $WTF and the utilities?
[Tom]
Our project is fully committed to making the protocol as decentralized as possible. Even our team members are formed across the world of yield farming strategists and DeFi OGs.
As in our tokenomics, we have committed 60% of the tokens allocated to our community, via user incentives like staking, liquidity provisioning, public sale, and our treasury — the usage will be decided in our future DAO.
For more information about our tokenomics, can refer to this article: https://medium.com/waterfall-defi/waterfall-defi-token-metrics-aead80c89627
There are three major use cases for our tokens:
1. You can stake our token to earn the governance token, which in terms would allow you to vote on upcoming protocol decisions such as approving a new portfolio strategy
2. Holders of our governance token would have the right to earn a portion of the transaction fee we charged from users
3. Going forward, users with our governance token can propose their own risk tranching products and earn structuring fees
Again - a graph for the token distribution
https://t.me/decentralized_club/614467
[May]
Great!
Q5. What are the advantages of Waterfall DeFi on the BSC Network?
[Tom]
In our opinion BSC is the second most mature defi space, with a lot of mature, high TVL farms right now, and the gas fees are negligible.
The community is also blossoming so we want to test out our product on this chain first.
That being said, this is just the first step, and we are actively looking at expanding into other blockchains in the near future. Expanding to Solana and other EVM-compatible chains is on the roadmap, EVM side is easier since most of the codebase can be reused, Solana we will expand our team with rust developers to do the work
[May]
👏🏻👏🏻👏🏻
Looking forward to it!
Q6. What major news should we still look forward to from Waterfall by the end of the year?
[Tom]
So a couple of them:
Right now we are hard at work to get everything ready for the testnet, which is a few weeks away. We are working with our auditor to review our smart contract, finalizing our DAPP's interface, and likely will launch our testnet soon - stay tuned!
For the mainnet, it will depend on our test net process. Once we get the feedback from the community and adjust based on the suggestions, we will be ready!
And finally, an upcoming milestone is that we are working hard to confirm our public sale, which we will have more information about in the coming days!
Can't stress that enough, please stay tuned to our channel for updates!!!!
[May]
Thank you!
Let's now take three questions from our Twitter community!
[Tom]
👍
Segment 2 - Twitter Questions
[May]
Q1. How will the $WTF token be a strong backbone to the Waterfall DeFi project? What are the key utilities of this token that make it essential to your project that pre-existing tokens cannot provide?
Twitter Username: @theyasflower
[Tom]
Thanks for the question
Like I answered earlier, there are three major use cases for our tokens:
1. You can stake our token to earn the governance token, which in terms would allow you to vote on upcoming protocol decisions such as approving a new portfolio strategy
2. Holders of our governance token would have the right to earn a portion of the transaction fee we charged from users
3. Going forward, users with our governance token can propose their own risk tranching products and earn structuring fees
What I want to reiterate here is that we want to reward the users who hold onto our $WTF with utility and financial gain :)
[May]
Those are good incentives :)
[Tom]
yes!
always doing the best for our community
[May]
😎
Q2. I have read that there are different Tranches with different risks and returns. From our different choices in the slices And how do the seniorities of the slices differ from each other?
Twitter Username: @Aykutbarnabas
[Tom]
Good question @Aykutbarnabas
My previous answer (https://t.me/decentralized_club/614456) basically explained this process - a quick example, If the average yield of the portfolio is 10%, different tranches would have a different level of reward and risk combination
Senior would likely be 5% but secured
Junior will be 15% and leveraged
[May]
Great!
Q3. WATERFALL DEFI has announced an initial product offering: a portfolio containing three BUSD groups: CREAM Finance, Alpaca Finance, and Venus. Could you give us more details about this? What are its characteristics and how does it benefit your community?
Twitter Username: @SharayLug
[Tom]
We usually would evaluate the risk involved in different crypto assets based on a couple of factors, including the reputation of the team/protocol, the amount of TVL committed by the community, the sustainability of the yield return, etc.
That's why we introduce 3 BUSD stablecoin farms that all have high TVL and sustainable yield, which is the most secure/safe approach to engage with our first ever product launch. We will also limit the TVL for our first product to ensure we can plan for a smooth launch
[May]
👏🏻👏🏻👏🏻
Let's now take three questions from our website community!
Segment 3 - Website Questions
[May]
Q1. The community is the most important aspect of any DeFi project in my opinion. What is the right governance model to guarantee a DAO with the right democratization in Waterfall? What level of participation will the Waterfall community have?
Telegram Username: @Josegamboac
[Tom]
good question
We have been through a lot of discussions of a proper governance model to ensure a DAO with proper democratization
An initial plan will be two multi-sigs with one as the Treasury DAO — with keyholders that we will invite industry leaders, our core devs and possible a few community long time ambassadors, and an Operation DAO
that as the question mentioned, getting our daily operations managed by our team, the Waterfall community, and the DeFi community
And eventually, in the future we envision our tranched products to be structured by the decentralized community, and whosoever structured great tranching products that offer optimal risk and return combinations that are used by the DeFi community will earn the structuring fees!
In the future, we will keep looking for new industry standards for implementing and upgrading our DAO!
[May]
Looking forward to those improvements!
Q2. On your website, you talk about Risk Tranching and Tranche Seniority as a basis for principal and yield distribution. Can you tell us what the term “Tranching'' means?
Telegram Username: @zaatoshi
[Tom]
Haha let me go back to this answer - this is a detailed answer to what tranching is
https://t.me/decentralized_club/614456
[Tom]
The more senior the tranche - the early they will be receiving the return distribution
[May]
A lot of people are interested in tranching 😅
Let's now take the last question for this segment.
Q3. I was reading that certain Waterfall DeFi portfolios will use a dynamic tranche thickness model. Could you explain exactly what this dynamic tranche thickness model consists of and what role it plays in your platform?
Thank you!
Telegram Username: @shitosan
[Tom]
So for the initial product, we will be setting a TVL limit for each tranche before we deploy, making sure that the ratio of deposit between the tranches is set so that we can clearly differentiate the yield between the tranche.
Going forward, we will release a new model where we don't fix the tranche deposit limit and will allow users to freely deposit in all tranches, so the yield will dynamically be adjusted - it is a lot riskier but that sometimes is what the DeFi community wants! So once we get enough feedback, this is firmly on our roadmap!
[May]
Hm! Sounds good!
We're 75% done with the session but guess what! The Waterfall DeFi project is 100% impressive 💯
https://t.me/decentralized_club/614515
[Tom]
haha
thanks!!!!!
[May]
You're welcome!
It's now time for the most awaited part of the AMA!
*drum rolls*
[Tom]
:)
[May]
In this 4th segment, I will open the group for some seconds for the live community to shoot you some pressing questions.
Please pick four original questions to answer.
Try to ignore generic, vague, and copy-paste questions 😊
Ready?
[Tom]
Yes! For those who are watching, put a 🍬 in the question - I will make sure to prioritize them!
[May]
Great idea!
The group will be unmuted in a bit.
---Chat was then opened for the live community to send in their questions---
Segment 4 - Live Questions
[Tom]
@MsMayMay so we are ready to pick?
[May]
Yes, please!
[Tom]
awesome
[May]
Pick four questions now. 🍬🍬🍬
[Tom]
lovely to see so many 🍬
[May]
Yes :)
[Tom]
Let me go with this one first
[Nimsa]
You haven't shared any of your community links. 🍬 Can we get more graphics that explain tranching and how to use Waterfall DeFi? 🍬
[Tom]
- 💬Telegram: https://t.me/waterfalldefi
- 💬 Discord: https://discord.gg/gS9Gda4sez
- 🐦Twitter: https://twitter.com/Waterfalldefi
Here are some of our social links and here is a graphic image of how the product would launch:
https://t.me/decentralized_club/614637
[Tom]
Above is a sense of how we will take a deposit from all 3 tranches, once the limit is hit in each tranche, deposit in the portfolio farm and then after 7 days of farming - distribute the return to the users, prioritize by their tranche seniority
[Sir DeFi]
🍬 Within its features you talk about the inclusion of a fixed income product, could you give us more details on this? Why have you decided to include fixed-income products? What benefits will this bring to users?
[Tom]
In the traditional market, a significant portion of the financial products is fixed rather than variable. On the other hand, DeFi lending protocols are currently 100% under the variable rate regime, which lacks the environment for DeFi to cross over with the traditional market. And bring the money into this open, permissionless financial world on the blockchain.
Under the variable-rate regime, the introduction of risk-related products to the DeFi space will bring further development in the already growing sector, and structured products are the next big thing to emerge on the DeFi horizon.
Structured products (options, futures, etc.) allow users to better control their investment portfolio, finesse their risk tolerance, and min./max. their trading strategy to further leverage their positions. Among structured products, the concept of risk tranching is particularly well positioned in the current DeFi market — relatively simple to grasp, it introduces a fixed income product that provides attractive yield options to investors with different risk appetites. In the DeFi space where everyone is seeking a good yield — especially if they’re in a bear market — attractive rates offered by risk tranching products are a strong option for anyone looking to delve deeper into the DeFi community.
okay, onto #3
[Jonathan Tross]
WATERFALL sounds very unique. Can you tell me why you decided to set this as your project name?
🍬
[Tom]
Waterfall is a pretty well-known terminology in TradFi to describe risk tranching products. Let's try to visualize this, imagine every risk tranching product as a series of waterfalls. The senior tranches are the beginnings of the stream, starting at the mountain tops and taking their fixed percentage yield while the junior tranches will receive the remaining runoff.
When the market is doing well, yield increases; like a rainstorm overflowing the river banks the junior tranches receive a higher cut as senior tranches are only entitled to their fixed percentage yield. Vice versa, when the market is in decline, yield decreases, like a drought where senior tranches remain entitled to their fixed cut as junior tranches are left with only droplets.
Alright - last question
Here is the final one!
[Jiren]
You mention that initially you launched in BSC with the first portfolio focused on 3 BUSD farms. In the future will these farms be enabled or will you create new ones focused on other stable currencies? 🍬
[Tom]
Yes - diversifying into other farms, other crypto assets, and additional chains are definitely on our roadmap - we believe this diversification is going to be the key thing that sets us apart in this market
We begin with BUSD stablecoin farm to ensure we can launch a steady and stable product right off the gate. Once we educate and get the community to be more familiarize with the concept and the product, we will be expanding in other assets, such as LP tokens, NFTs, leveraged products, etc. - the sky's the limit and we will be working with our community to build on that
Of course - if the community actually prefers something more stable, our stablecoin product will always be there and really the market will drive the type and number of products we put out :)
That would be all
[May]
Aaaannnndddd it's a wrap 🎉
Dear community, please find links to Waterfall DeFi here.
https://t.me/decentralized_club/614634
[May]
It's been a pleasure interviewing Mr. Cheng today!
Any final remarks for our community? 😀
[Tom]
Thank you @MsMayMay - pleasure is all mine
Thank you so much for having me today, we are really grateful to be interacting with the Decentralized Club!
At Waterfall DeFi we keep building tirelessly to offer the DeFi community the autonomy of choosing between risk and rewards for everyone's yield farming journey. We believe our tranched products will be one of a kind and it's gonna be a great addition on top of the DeFi legos we have now...
While the testnet version with user bounty will be out there soon, just wanna also let you guys know that as our public sale is also coming up! If you guys are interested in participating in our public fundraising rounds, be sure to follow https://t.me/waterfalldefi_annoucements and our group chats https://t.me/waterfalldefi for the latest updates... until then stay safe and enjoy the Web3 revolution brothers and sisters!
https://t.me/decentralized_club/614658
[May]
Thank you, thank you! We do wish you all the best with the project.
Do send our regards to the rest of the amazing team at the HQ.
[Tom]
Will do!
[May]
Until next time, enjoy the rest of your day!
Xièxiè :)
[Tom]
谢谢
[May]
The AMA with Waterfall DeFi is now over.