u/neurotypical_

for those who are not familiar with the concept

Risk tranching has been picking up in DeFi lately, mostly through protocols like Royco and Strata. the idea is you take one yield source and split it into two tokens that have different claims on the returns and different exposure to losses.

Senior puts in most of the capital and gets a lower but steadier yield. In return it gets downside protection. junior puts in less capital and eats losses first. It earns more for two reasons: senior pays it a cut of its yield as a risk premium, and junior is effectively levered, since a smaller stack is earning on the whole pool.

Say a vault has $100, $80 senior and $20 junior. if the vault loses $10, junior eats all of it and drops to $10. Senior is untouched at $80. Senior only starts taking losses once the damage goes past $20 and junior is fully gone.

A general-purpose ERC-4626 vault for leveraged lending on Morpho Blue. Depositors supply a single asset; an allocator opens leveraged positions across multiple isolated markets, with the target leverage passed in calldata per action rather than fixed per market.

Everything is atomic through Morpho's flashloan and Bundler3. Opening, unwinding, and changing an existing position's ratio without closing it all happen in one transaction, including rebalancing between two markets in a single call.

would love to get some feedback