Decentralized finance (DeFi) could become the most radical development to come of blockchain technology and cryptocurrencies by potentially ushering in a new foundation for global finance. 

One of the projects that set some early precedents for DeFi was MakerDAO, which pioneered the use of having a distinct token for governance, with MKR, and a stablecoin backed by cryptocurrency as collateral — DAI. Next came Compound (COMP), which let customers borrow and lend select cryptocurrencies using a marginalized system that controlled collateral risk.

These early developments have led to the DeFi market we see today, with many yielding products seeming to have consolidated into one of three variations. There is the standard deposit/lending program, most commonly used by the average DeFi user, in which they simply deposit or lend out their tokens in return for a yield.

Those among the more advanced may use decentralized exchanges (DEXs), in which users stake their tokens into a liquidity pool, or might also prefer yield aggregators. Each caters to users with a different risk appetite, with the risk-averse choosing lower stablecoin yields versus the more risk-tolerant, likely willing to risk more for the higher yield of liquidity pools.

Now come products that allow even the more risk-averse to invest in riskier products without the danger of principal losses, giving it a much higher appeal than standard low-yield products. Waterfall DeFi offers structural investment products, in which pools of yield-generating DeFi assets are packaged into three different “tranches.” Each is given seniority based on expected yield, risk and maturity.


The tranche seniority is determined by the method of capital distribution, in which cash flows generated from the portfolio are paid out in a cascading or waterfall-like fashion. Payments are first made to the senior tranche, then passed onto a mezzanine tranche. In having the last right to the cash flows, the junior tranche has the highest risk, which entitles it to a greater portion of potential rewards.

In the case of a loss, senior tranche users are still paid their principal, in addition to a fixed return, while junior tranche users would incur a principal loss but be paid the remaining capital. While in the case of a profit, senior users are only paid their fixed APY, and the remainder of returns go to junior tranche users.

The team

With an experienced background in traditional finance, the founders of Waterfall knew the significance of fixed-rate offerings since they represented a sizable portion of the total market. Consequently, this became a niche they noticed in a market where lending protocols are almost all under variable rates. 

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Founder 0xWaterfall spent ten years with a Tier 1 investment bank specializing in cross-asset structured products, spending the past five years deploying those trading strategies in crypto. Meanwhile, project lead Tom Cheng graduated from Harvard and was previously a consultant with McKinsey & Co. 

WTF token

The native governance token issued by the Waterfall DeFi platform is WTF, which will also serve an additional utility role. For one, it will play a primary role in facilitating platform governance through its decentralized autonomous organization (DAO). WTF holders will play a crucial role in deciding key features of the protocol. 

The WTF token also aligns certain incentives in several ways. It will reward platform stakers of WTF by deciding how the platform fees will be distributed through its governance. To ensure that the deposit amount in each of the tranches is closest to the ideal ratio, or “thickness,” users depositing with the most skewed thickness are also rewarded with higher amounts of WTF. 

Achievements and plans

The protocol was launched on the Binance Smart Chain (BSC), which was chosen for its low gas fees, stable APY farms and vibrant community. Among these stable farms, Waterfall DeFi introduced its first product BUSD Falls, a portfolio that aggregates two BUSD lending vaults, Alpaca and Venus, where the platforms exhibit high total value locked, stablecoin liquidity and sustainable APY. 

In the near future, Waterfall intends to introduce more types of products into its portfolio, such as LP tokens, leveraged products, etc., to offer diversified options to the community. Additionally, cross-chain compatibility, which would include products on Ethereum (ETH), Solana (SOL), Avalanche (AVAX), Polygon (MATIC), is also on the roadmap.

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