Tranchess v3: Building LSDFi Around Layered Funds

Author: defioasis

This post is sponsored by Tranchess

The rise of modular storytelling and the creation of the Restaking protocol Eigen Layer have opened new application scenarios for LST and driven higher capital efficiency. According to DeFiLlama data, as of March 20th, Eigen Layer’s TVL has surpassed $10 billion, becoming the second-largest TVL application across multiple chains; the LRT protocol built around Eigen Layer has also captured over $6 billion in TVL, becoming the eighth largest asset category in the DeFi space. Against this backdrop, to allow holders of Ethereum staking tokens to explore greater potential returns, Tranchess v3 was timely launched.

Tranchess was born during the DeFi Summer of 2020 and received early funding from Binance Labs and Spartan Group, among others. Tranchess has been audited by PeckShield and Certik, with a total of 7 audits, the last of which took place on December 28, 2023. Audit records can be found on the official website.

Look Back At History

The name “Tranchess” is inspired by the game of chess and the French word “Tranche,” which is often associated with layered funds designed to meet the needs of investors with different risk preferences. As an established DeFi protocol that emerged during the DeFi Summer, Tranchess initially focused on the concept of layered funds, offering yield products on the BSC with BTC and ETH as the primary assets, later expanding to the Ethereum chain and more assets. Over the past few years, as the DeFi market has evolved and new investor demands have emerged, the Tranchess protocol has continued to iterate and evolve around the core of DeFi asset management.

In October 2021, the Tranchess community governance token CHESS was launched on Binance. In January 2022, Tranchess launched the BNB fund and became one of the validator nodes on BSC, initially venturing into the staking yield category. In June 2022, Tranchess introduced version 2, featuring the BISHOP-BUSD AMM pool and instant trading, and supported real-time creation/redemption of QUEEN. In December 2022, Tranchess released the liquidity staking product qETH, entering the LST/LSD track. In mid-February 2024, as the first step in the LSDFi narrative, Tranchess v3 was born.

(Note: In Tranchess, Queen represents the main fund, while Bishop and Rook are sub-funds separated from the main fund. Generally, Queen is suitable for long-term holders of BTC/ETH/BNB, Bishop is for users who prefer stable, low-volatility returns, and Rook is for users with a higher tolerance for risk and volatility.)

Explaining Tranchess v3

Tranchess v3 currently supports the use of stETH and wstETH, and may expand to more LSTs in the future. Users can convert stETH or wstETH into wstQUEEN, with the exchange ratio of wstETH to wstQUEEN being 1:1. The exchange ratio between stETH and wstQUEEN is the same as the exchange rate between stETH and wstETH, for example, if 1 wstETH = 1.15 stETH, then 1 wstETH = 1 wstQUEEN, and 1.15 stETH = 1 wstQUEEN.

Subsequently, users can split wstQUEEN into turYETH and staYETH at a certain ratio. Still using the above example, when 1 wstETH = 1 wstQUEEN = 1.15 stETH = 1.15 ETH, upon splitting, 1 wstQUEEN will be divided into 0.115 turYETH (1.15*1/10) and 1.035 staYETH (1.15*9/10).

turYETH (Turbo Yield ETH) and staYETH (Stable Yield ETH) are both yield tokens but represent different risks and rewards. The former offers a higher yield potential with leverage, while the latter provides relatively stable returns. Both turYETH and staYETH have no lock-up period.

staYETH allows users to lock in earnings 365 days in advance, with the fixed income not being affected by fluctuations in the Ethereum network’s staking APR. The fixed interest rate for staYETH is 3.5%, and any excess earnings beyond this rate are attributed to turYETH users. Clearly, turYETH is designed to offer a leveraged earning strategy for users who wish to long the ETH staking APR. In other words, when the staking earnings on the Ethereum network increase, holders of turYETH can achieve higher returns than the fixed income.

wstQUEEN can be redeemed for stETH or wstETH at any time. turYETH and staYETH can also be merged into wstQUEEN or exchanged directly for wstETH or stETH through Tranchess’s own AMM pool. Whether it’s the creation and redemption of wstQUEEN, or the splitting and merging of wstQUEEN, the protocol does not charge any fees; opting for direct swap transactions between turYETH and staYETH with wstETH or stETH incurs a 0.05% fee, with 80% distributed to LPs, 10% flowing into the treasury, and 10% returned to veCHESS holders on Ethereum in the form of weekly rebate.

To further illustrate the distribution of earnings between staYETH and turYETH with an example, assume 1) the user locks in a staYETH rate of 3.5% and holds for a year; 2) the actual ETH staking APY is 4%; 3) 10 stETH equals 9 staYETH and 1 turYETH. At the end of the year, 100 stETH generates 4 ETH of earnings at a 4% APY. Of these 4 ETH earnings, 90*3.5% = 3.15 ETH are allocated to staYETH users, and the remaining 4–3.15 = 0.85 ETH is allocated to turYETH holders, resulting in a turYETH yield of 0.85/10*100% = 8.5%.

Currently, Tranchess is hosting a three-month Blitz event, during which, in addition to regular earnings, holders of V3 tokens can enjoy more than 25% extra CHESS earnings rewards, with LPs also benefiting from additional wstETH earnings incentives provided by Lido.

Tranchess v3 addresses the pain point of users being able to maintain stable annualized returns while also considering risk strategy adjustments. As of March 20th, Tranchess v3 has attracted over 5.8 million US dollars in stETH. Leveraging the new architecture of wstETH, staYETH, and turYETH, users can enrich the possibilities of their staking token earnings through a combination of fixed income and leveraged enhancement strategies.

Reference: https://foresightnews.pro/article/detail/29920

https://tranchess.medium.com/tranchess-chinese-english-bi-lingual-v2-ama-recap-64d4a4076a34