AMA Recap Crypto Library with Waterfall


On 29th September 2021, Waterfall conducted an AMA in the Crypto Library Community. Our guest is Tom. Lots of questions as usual from the Community about Waterfall progress. The Waterfall team took part in a very interesting AMA session which included introductions, questions from twitter, and a live AMA session with the Crypto Library community. If you missed the AMA in person, read this recap for a deeper insight into Waterfall.

Let’s take a look at the most interesting points of our conversation. 

Crypto Library Team : So, before we start the AMA could you please introduce yourself to our community?

Tom (Waterfall) : 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 off 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.
Crypto Library Team : What is Waterfall DeFi? and how does it work?

Tom (Waterfall) : 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 - a portfolio with 10% expected yield, after we slice it into 2 tranches, the senior tranche will receive 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% - senior will still get their 5% (as they are being paid out first), while junior might see a 2% lost 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 to 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. Goal is to create different types of investment options and risk factors that users can select based on their preference! Let me share a graph as well: 
This is a more visual representation of how tranches work and how the yield distribution is setup.

Crypto Library Team : Why should we choose Waterfall DeFi than any other projects out there?

Tom (Waterfall) : There are a few similar concepted protocols in the space now, and Waterfall is a bit different from them due to the following four 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 tranches 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 of time (seven days) during the deployment period.

Crypto Library Team : Please tell us about $WTF token! What are the token use-case, distribution, and also where we can buy it?

Tom (Waterfall) : Our project is fully committed into 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: 
As for use case - there are three 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 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.
In turns of where to buy - we will have an announcement regarding our public sale very soon - so please stay tuned and follow our social media, don't miss it!

Crypto Library Team : Could you give us some information about your roadmap, your milestones, and also your future plans?

Tom (Waterfall) : The first milestone for us is to decide which blockchain to focus on, and we decided to go with BSC, due to its negligible gas fee and presence of high TVL farms with sustainable return. Then the second milestone would be launching our first product - which would include 3 BUSD farms. Going forward, once we are more matured and the community is more educated to 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. Goal is to create different type of investment options and risk factor that users can select based on their preference! We are now hard at work to get everything ready for test net, 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 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, and upcoming milestone is that we are working hard to confirm our public sale, which we will have more information in the coming days - please stay tuned to our channel for updates!
Crypto Library Team : Can you explain the seniority system in 'yields' that I read from your website? When and how are we classified in the senior and junior tranches? What are the differences?

Tom (Waterfall) : 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 principal payment is 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. Go back to the waterfall example I gave earlier, let's 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. So in essence, the more senior the tranche, the safer and more protected their investment is. And in exchange for this protection, they will give out a portion of their future expected yield to the junior tranches, who happily take on the risk of protecting senior's downside with the leveraged return.
Can see this graph. Where Charlie is at the more senior position, so he will get the yield distribution first, then to the more junior tranches (Bob and Alice).

Crypto Library Team : It says that the community can participate in decision making in #WaterfalDeFi. It states that governance rights will allow users to propose a list of DeFi assets to include. What is the percentage of token ownership to be able to get this right?

Tom (Waterfall) : Community is always the most important aspect of any DeFi projects and we believe that wholeheartedly. We proposed to allot ~60% of the total token supply for the community (Community + Treasury) - that is a sign of us making sure that the community has a voice in this. For the proposal of DIY products - those who staked our token in the protocol will earn our governance token veWTF. Those with veWTF token will be able to propose new products to be listed, and once it has enough upvote from the community, our team will review the operational aspects of it (tech involved, risk involved, market fit, etc.) If those are passed - it will be moved to the DAO for approval. That is further along on our roadmap, so I don't have the details in numbers yet. We very much look forward to working with the community to decide on what is the right parameters.
Crypto Library Team : From where you get your project name? What is the main motivation behind your project? do you have any story to share?

Tom (Waterfall) : So I have already mentioned why Waterfall DeFi is called Waterfall DeFi. I do want to talk a bit about the motivation. 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 for more complex and advanced structured products to compliment their investment strategy, and risk tranching products are something that could fit the community 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 are able to bring this concept to the community and work with them to figure out what would work for DeFi. To learn more about how risk tranching could work for DeFi - can take a look at an article I wrote recently:
Crypto Library Team :  I understand that you have two types of tokens, $WTF and $veWTF, can you explain us what will be the use cases of each one and their characteristics? How can I get veWTF?

Tom (Waterfall) : So $WTF token is our native token, once we launch our public sale you will be able to trade it on exchanges. There are a few ways to earn this token:
  1. Use our protocol and farm, where you will get both the base yield from the underlying farm, as well as $WTF
  2. Stake your $WTF in the protocol, in exchange for veWTF token and earn additional $WTF token
  3. Be our LP provider
As for veWTF - it is our governance token, it will be used for issues related to governance going forward, like voting on new product being launched on the platform, as well as earning a portion of the platform's transaction fee. This is earnt by staking $WTF token on our protocol.

Crypto Library Team : A strong community not only brings interesting ideas to the project but also attracts larger partners, So how #Waterfall planning to build its community?And is there a plan to recruit people with Blockchain experience to the #Waterfall team?

Tom (Waterfall) : Yes - community is the most important aspect of any DeFi projects imo - we have been through a lot of discussions internally about a proper governance model to ensure a DAO with proper democratisation. An initial plan will be two multisigs 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. 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 of implementing and upgrading our DAO! And we are always looking for good blockchain developer! So if you or anyone you know are interested, please DM me. 

Crypto Library Team : Do you have AUDIT certificates, or are you working to AUDIT your project, to make it more secure and reliable?

Tom (Waterfall) : So we consider the risk of this project in two different aspects:
  1. Protocol Risk (essentially the security of our project smart contract)
  2. Underlying farm risk (the 3rd party lending pool protocols that we deploy our investment strategy to)
For protocol risk - we take it very seriously. With all the recent DeFi hack, we want to make sure our code is as secured as possible. We are working with Slowmist to undergo audit right now on our code, and they already gave us some feedback (thank god those are minor ones) - and we are revising our code to make sure it complies with their standard. We will release the audit report soon to the community. Going forward we will also work with additional auditors and other top developer friends we have in the space to do peer review, making sure we keep this in our focus all the time. As for the underlying farm risk - we usually would evaluate the risk involved in different crypto assets based on a couple of factors, including: the reputation of the team/protocol, 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.

Crypto Library Team : You mentioned that in the future you will include more diversified assets, will it be in the near future? Could you mention even one asset that you would like to include, and could it be included by Q1 2022?

Tom (Waterfall) : The answer to this question is a resounding yes. Diversification is one of the key strengths we have and we think this is what is going to keep us long term in the DeFi space. Our first product is launched with 3 BUSD farms, because we want to have a guarded launch, and get our project out of the door smoothly. As a result, we are not going crazy and not really experimenting the risky pools. Once we get the users involved and familiar with our product/concept, and also got some experience under our belt, the idea is to work with the community to figure out what are the more creative way to package different pools into interesting products. So far, LP pool, leveraged product, NFT, staking for POS blockchains - anything is possible as long as there are demand for it, so we will be focusing on that once we get our feet wet and get the project out of the gate.