- INVESTMENT IDEAS
Tranchess: Three Months to $1.3bn in Locked Assets
- Tranchess is a lending and derivatives protocol on the Binance Smart Chain (BSC).
- Three months after launching, it already has a total value locked (TVL) of $1.3bn and there is a clear path to further expansion.
- However, this space is not without competition
- Tranchess offers strong investment opportunities
Tranchess is built on “tranches” - the concept of splitting up one financial asset into component parts that each have a different risk/return profile.
Tranchess uses tranches to separately serve the needs of two types of investors:
- Those looking for high yields on stablecoins
- Those looking for leveraged exposure to a crypto asset in a straightforward way
Today, Tranchess only offers tranches on BTC, but they plan to introduce tranches for other underlying crypto assets using the same structure.
For each underlying asset, Tranchess has three different tokens:
Tranchess Protocol allows for several investment strategies. One is purchasing and staking one of the three tokens mentioned above. Staking unlocks lucrative $CHESS inflationary rewards. Here are returns for each:
*Under specific circumstances, QUEEN may not be redeemable 1:1 for its underlying. Details: https://docs.tranchess.com/faq/rebalance
Another investment strategy is investing in the $CHESS token. $CHESS derives its value from protocol fees and governance power. Specifically, protocol fees include a 1% annual management fee and a 0.2% fee on $QUEEN redemptions.
Currently $CHESS has a fully diluted market cap of $1.4b and has a reasonable value. For comparison:
TVL could substantially increase when Tranchess introduces ETH products because yields on ETH are much lower elsewhere. Capitalizing on that could be a reason to invest in $CHESS.
Tranchess is backed by top investors in the space, including Three Arrows Capital, Spartan Group, and Binance Labs. The team has decades of experience in traditional finance as well as big tech. Co-founder Danny Chong worked 16 years in investment banking.
Given this background, the team should be conscientious of potential risks, including smart-contract bugs and economic attacks. But these attacks remain a danger to any project in crypto.
Another risk is competition. The Tranchess team designed a compelling product and token model but it lacks defensibility. The team is particularly vulnerable now, as they have yet to launch products for the other major crypto asset - ETH. There will soon be copycats that target other assets. These could steal TVL and harm growth prospects.
Also, any investor in Tranchess should understand the risks associated with rebalancing. This mechanism can be triggered in unusually volatile markets.
Nothing in this article constitutes professional and/or financial advice. The content is provided exclusively for informational and/or educational purposes. Nothing is to be construed as an offer or a recommendation to buy or sell any type of asset. Seek independent professional advice in regards to financial, tax, legal and other matters.