WATERFALL DEFI AMA Summary Recap with Shin Chan Community

We held a live AMA with Waterfall DeFi Project lead, Tom Cheng on 3rd November 9:00 PM (UTC+8). Here’s the recap for those who missed it.


Serene | Shin Chan: A very warm welcome to you. Before we start the AMA, can you please introduce yourselves and the team background to our community?

Tom Cheng | Waterfall DeFi: Sure thing!

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.

Serene | Shin Chan: Any latest/ update news about Waterfall you would like to share with our community?

Tom Cheng | Waterfall DeFi: So the most exciting upcoming news = our mainnet drop is right around the corner!

We are going through the last part of the internal testing, as well as getting our audit to have a final review on our code, and how the contract functions on the mainnet.

Once that’s done — we will be dropping the product — so please follow our social media for the latest information!

AMA Twitter Section Begins:

Q1. Is there any plan for the waterfall to support more blockchains in the future? What are your goals for cross-chain convergence in order to obtain widespread adoption?Could you please list a few key partners who are making a significant contribution to Waterfall defi business?

Tom Cheng | Waterfall DeFi: Good question

So our product will start on BSC first, and in our opinion BSC is the second most mature defi space, with a lot of mature, high TVL farms right now, and the gas fees are negligible.

That being said, this is just the first step, and we are actively looking at expanding into other blockchains in the near future.

Expanding to Solana and other EVM-compatible chains is on the roadmap, EVM side is easier since most of the codebase can be reused, Solana we will expand our team with rust developers to do the work.

Q2. Regarding the tranches, I read that initially, the protocol will have a subscription limit for each one. Does this mean that in the future this will change? On what factors will it depend if they will be maintained with this limit or not?

Tom Cheng | Waterfall DeFi: Good question — thank you very much for following our product 😊

So yes — initially we put out a limited subscription in each tranche — the goal is that we can maintain the right ratio of deposit in each tranche — hence making sure the earning ratio between each tranche is right and we can truly differentiate the return from each tranche

Going forward, we definitely will put out products with this feature, as there are users who prefer to invest into something that is a bit more set (especially in the senior and mezzanine tranche) — as we see the concept of fixed income product could bring a lot of value to the users

Meanwhile, we will also put out more dynamic / continuous tranched product — which in this case they won’t have a set limit on the deposit, but users also need to take into account the yield return from all tranches will likely be dynamic and subject to the deposit amount in each tranches.

Q3. I understand what a waterfall is, but how does it link to your project? Why did you name your project after a waterfall? Is there a particular reason for this, or do you simply enjoy waterfalls?

Tom Cheng | Waterfall DeFi: Actually — waterfall is a pretty well known terminology in TradFi to describe risk tranching products. Let’s try to visualize this, imagine every risk tranching 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.

Q4. I Read Waterfall will charge a small amount of exchange fee for each transaction related to the product, So where do the funds collected from those collected commissions go, that is, what is the point of them giving the collected funds, are they destined as a whole to continue ?

Tom Cheng | Waterfall DeFi: Correct — the protocol will charge a very small amount of % of fee for the transaction — the point is those fund received will be used in two ways

- part of those will be used to maintain the platform’s daily operation, as well as the ongoing development. We need to be a self-sustained project to be able to bring value to the community in a sustainable manner

- the rest of the fund will actually be used to reward those who staked our WTF token. As we are a community-focused project, we want to make sure users who staked our token will actually have some economic benefit from doing so — hence rewarding them back with a share of the platform fee is something we will do, also highlighting our dedication to the community.

Q5. Will I be able to see past and expected performance values before choosing my own strategy in the portfolio strategy? How will I learn about slice characteristics and risk parameters?

Tom Cheng | Waterfall DeFi: The historical performance of the portfolio will be recorded in the UI of the dApp. Meanwhile you can also see the details about where are the farms that the portfolio is deployed into as well as the ratio of deposit in each tranches — thus giving you a clear sense of how to optimize your investment.

In the first product, Senior and Mezzanine tranches are going to be with a fixed APR, while Junior will enjoy a dynamic return — so the return % will be a good indicator of how the risk would be with the product

Let me show you guys a sneak peak of the UI below

Telegram Live AMA Begins:

Q6. You aim to Provide a Fixed Income Product by locking hsers deposit,
Will it really Provide fixed income, how?

Tom Cheng | Waterfall DeFi: Let me answer this first

Yes — we are looking to provide a fixed income product, which in the tradfi world is a huge portion of the market but so far has not been common in DeFi — which we see there is a clear market need.

How we achieve the fixed income product is that we will lock the users’ deposit during the deployment window, which no one would be able to pull those fund out and only till the deployment maturation period is reached would the deposit will be then redistributed by tranche seniority. As a result, since everything is locked and then redistributed, junior tranche wont be able to pull their fund out if they see the underlying asset starts to underperform, which is this case their deposit will be used as coverage for senior for the fixed return. This is how we create a fixed income product on the DeFi space

Of course, under extreme circumstances, such as ALL the farms failed at the same time, then yes, all the users will see their fund gone, but those would be very unlikely and we set up a diversified portfolio to specifically counter those situation

Q7. What can you tell Us All about structuring a portfolio for Waterfall DeFi as a product itself? What does it bring to the table that your competitors don’t have? What is the difference? Also wondering about your short UI talk? how will it look?

Tom Cheng | Waterfall DeFi: So I have a very simple graph that would highlight the difference between us and our competitors

As for our UI — our mainnet drop is around the corner and we will have a overall user guide on our gitbook and a short overview video soon

Before that you can refer to the follow teaser video for the look and feel of the UI

Q8. 🧨 I read Waterfall Defi’s token $WTF is a utility token. So, with that in mind, can you tell us more about how does $WTF exactly work? As a utility token, what kind of benefits does it provide to investors and to the platform and it’s development too? Why should people hold it?

🧨 Not too long ago C.R.E.A.M suffered from a hacker attack where $115 million where robbed. So, I was wondering since this happened, what kind of security measurements have Waterfall Defi take to reassure users they are safe in your platform as security is considered a key aspect?

Tom Cheng | Waterfall DeFi: et me first answer the Token part:

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:

There are three major use cases 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

Now on the question of CREAM

yes — we are well aware of the situation and we are confident about the Cream’s team’s ability and credibility to weather the storm and take the protocol back!

That being said — security is of upmost importance to us, and we are evaluating the situation closely to determine if we will include CREAM in our first product launch — more information will be shared on our first product launch — please follow our social for the latest update

Q9. You would slice the Portfolio in to different TRNCHES, Can You explain a little bit more on this?

Tom Cheng | Waterfall DeFi: 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.

To 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.

The following is a picture that shows the basic concept of how different tranches work

Q10. Today, Waterfall DeFi-style projects face 2 types of security risks.
1-Risk consisting of the main contract code
2- The risk associated with the underlying pools of your products. Have you made an AUDIT for the first risk, do you have a report? Second, have you done a restriction for the amount of TVL or a risk assessment for 3rd party risk? Which do you think is the most dangerous?

Tom Cheng | Waterfall DeFi: Yes, you are correct that we are looking at two different type of risks and security is a key issue and we take it seriously.

For the first one you mentioned, we take measures and work with a renowned auditor (Slowmist) to review our code base right now, they gave us some feedback (thank god its relatively minor) and we are now working hard to revise the code based on their suggestions. We will soon have the auditor report done and can’t wait to share with the community to boost their confidence in us. Meanwhile, going forward we soon launch our bug bounty program and continue to work with different auditors and other developer friends we have to peer review the code, making sure that we are always vigilant about checking and reviewing the security

For the second one, 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 the 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

Q11. NFT appears to have a promising future. So, do you intend to incorporate NFT into your project?

Tom Cheng | Waterfall DeFi: Hehe we do have minted a bunch of NFTs with our official Waterfall Waifu, might do a giveaway soon! Stay tuned for future announcements


Q12. IS Your project only for elite investors, what about others with small funds, is it open to everyone?

Tom Cheng | Waterfall DeFi: We are trying to accommodate to everyone in the DeFi world. As I said earlier, introducing risk tranching to the greater DeFi community is kinda our team’s passion

Yes I understand that from the sound of it risk tranching is not a super straight forward concept, but it is not something like rocket science. Traditional finance likes to hide this behind fancy jargons and complicated numbers, but in fact it is some basic math related to how users could hedge against each other.

The team is passionate about this, and would like to introduce the concept to our community, working with them to bring new ideas to this space, and innovate with the help of our community. With a gradual approach in launching our protocol, I invite all our community to embark on this journey with us!

Q13. Market volatility is a very serious problem. Now, can you give a brief explanation of the limitations this causes? What methods would you employ to reduce this to a minimum?

Tom Cheng | Waterfall DeFi: In the traditional market, a significant portion of the financial products is fixed rather than variable. On the other hand, DeFi lending protocols are currently 100% under the variable rate regime, which lacks the environment for DeFi to cross over with the traditional market. And bring the money into this open, permissionless financial world on the blockchain.

Under the variable rate regime, the introduction of risk-related products to the DeFi space will bring further development in the already growing sector, and structured products are the next big thing to emerge on the DeFi horizon.

Structured products (options, futures, etc.) allow users to better control their investment portfolio, finesse their risk tolerance, and min./max. their trading strategy to further leverage their positions. Among structured products, the concept of risk tranching is particularly well positioned in the current DeFi market — relatively simple to grasp, it introduces a fixed income product that provides attractive yield options to investors with different risk appetites. In the DeFi space where everyone is seeking a good yield — especially if they’re in a bear market — attractive rates offered by risk tranching products is a strong option for anyone looking to delve deeper into the DeFi community.

Q14. Where did you get the inspiration of creating Waterfall DeFi project? How did you decide on this name? Can you please tell the story behind?

Tom Cheng | Waterfall DeFi: This I can talk a bit about the motivation behind the project (the name I have already explained earlier)

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.

Q15. Could you tell us about your important milestones in the roadmap, especially in product development? Will there be important developments that will affect investors in the near future?

Tom Cheng | Waterfall DeFi: I can tell you what the project had achieved lately — and what’s the current key milestones that are on our plate:

- We recently just concluded about public listing @ AscendEx and Pancakeswap — about 10 days ago, the realization of our token is a good way to indicate to others that this is not just a “paper” project and we actually have a plan and executing against it

- We are now hard at work to build — doing the final part of testing of our smart contract on mainnet — as well as getting audit to have a final review of the code. Given that we are a yield-farming protocol, we want to be extra careful of our code and the contract, since we are basically asking users to put in the hard earned crypto to the project. We are super close to a mainnet drop — and please stay tuned to our social, and we will announce the news really really soon, like around the corner 🤫

- We are also working on building our staking page from the front end perspective, which we will plan to launch shortly after the mainnet drop. Meanwhile, you can stake our token on AscendEx for pre-staking, which is offering 100% APR!

- Going forward we are looking at expanding our product offering, we are in chat with a major yield farming platform (>1B TVL) and are working to curate a risk tranching product specifically designed for that platform’s farms

- The team is also working on improving the existing contract, to optimize some product features, making sure we can provide more support/quality of life improvement for our users.





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