Introducing Tranchess

5 min readJun 15, 2021

Investors of Decentralized Finance can now take advantage of tokens that have multiple benefits with Tranchess’s Token QUEEN, BISHOP, AND ROOK.

A Yield Enhancing Asset Tracker with Varied Risk-Return Solutions

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DeFi Investors have long encountered multiple challenges, such as impermanent loss, capital inefficiency and forced liquidation at times. To resolve these difficulties, Tranchess has developed a first of its kind product for investors to maximize their returns.

Wondering what Tranchess is all about? It is a yield-enhancing asset tracker with varied risk-return solutions, which is inspired by tranche funds that cater to different class of investors with varying risk appetites.

Tranchess derives different risk/return matrix out of a single main fund. The main fund tracks a specific underlying asset and can be split equally into 2 sub funds. One sub-fund provides risk-averse investors with a high-yield token, while the other provides risk-seeking investors with leveraged exposure to the underlying asset.

Tranchess also provides features popular with many DeFi protocols, such as single-asset yield farming, borrowing & lending, trading, etc.

How It Works:

Tranchess consists of three tranche tokens — QUEEN, BISHOP and ROOK and its governance token CHESS. (Tranchess launches with BTC as its first underlying asset and would be planning to add other crypto assets to its protocol subsequently.)

The main fund, or token QUEEN, is a BTC-tracking token with yield farming feature. QUEEN’s Net Asset Value (NAV) tracks the BTC price on a fully correlated basis^.

Rather than holding BTC passively, investors can now swap their BTC for token QUEEN via a ‘creation process’ or buy from the “Swap” with USDC. In doing so, they will have the exact same BTC exposure and alongside the ability to farm Tranchess’s CHESS tokens for further yield enhancement. CHESS is also key to receiving additional rebate from fees collected within Tranchess. Upon any intention to exit, investors can simply swap their token QUEEN back to BTC via the redemption process.

Every token QUEEN can thereafter be simultaneously split into two other tokens: 0.5 token BISHOP and 0.5 token ROOK. On the reverse, 0.5 token BISHOP and 0.5 token ROOK can be merged into 1 token QUEEN.

Here’s a simple flowchart explaining the general process in Tranchess’s Primary Market:

The token BISHOP is a risk-free tranche and effectively a USDC high-yielding product in DeFi terms, whilst token ROOK is a leveraged BTC tranche. BISHOP holders earn interest from ROOK holders, i.e, BISHOP holders are effectively lending USDC to ROOK holders for leveraged BTC exposure and thereby earning an interest payment.

The cost of leveraging had been consistently high as can be observed from the implied borrowing rates derived from perpetual swaps and futures over the last few months. The existence of token ROOK and BISHOP provides the perfect ecosystem to a cheaper leveraging option and yet at the same time allows both token holders to farm CHESS tokens as an additional yield booster.

How to Trade:

Each of the three tokens has two prices: a NAV and an Open Market Price. Primary market operations such as creation and redemption will use NAV as the reference price, whereas the live and tradable market price will be discoverable on our Tranchess Swap.

Primary market mechanisms

There are two main procedures involved in primary market:

Creation/Redemption: Creation takes place when a user exchanges BTC for QUEEN at the NAV price. And vice versa, redemption takes place when a user exchanges QUEEN for BTC. Creation and Redemption requests can be submitted anytime and will be processed at a single pre-determined time daily.
Token Splitting and Burning：In order to start earning additional yield/leverage, investors can choose to split one (1) token QUEEN into half (0.5) token BISHOP and half (0.5) token ROOK. In this case, BISHOP and ROOK are minted while QUEEN is burned. On the reverse, investors can combine equal number of token BISHOP and token ROOK together and merge them into token QUEEN. Under this scenario, BISHOP and ROOK are burned and QUEEN is minted. Split and Merge requests can be submitted anytime and processed instantaneously.

Tranchess Swap

In addition to the primary market operations, investors can choose to buy or sell the tokens directly on open market. Tranchess adopts an orderbook-based system with a twist: A premium/discounted based pricing mechanism as shown below:

Rather than trading the live prices of tokens, the Swap allows the trading of premiums or discounts of a forward benchmark price, based on the next 30-minute TWAP (Time Weighted Average Price) fixing. For instance, at 9:45 am, Alice buys QUEEN from Bob on the order book at +25bps premium. This transaction’s reference price will be the NAV for the next 30-min window, i.e., 10 am — 10:30 am and trading would be done based on discount or premium of this NAV.

We will discuss the NAV calculations in detail in the future. Suffice to say, this revolutionary mechanism minimizes the potential of oracle attacks. It is also Market-Maker friendly as they don’t need to constantly update their orders due to market fluctuation, which translates to promoting liquidity while ensuring a timely and frictionless exchange of different tranches.

Why Tranchess

Users can reap various benefits from using the three Tranchess token based on their needs.

QUEEN: Enhanced return for BTC holders.