Yield allocation
A positive net result is allocated between Senior and Junior. Senior gives up part of its proportional result to compensate Junior for taking first losses. The premium is a redistribution inside one vault, not a separate source of yield.
Define the inputs
Let S be Senior’s booked value, J Junior’s booked value and R the positive result available for the ordinary split after applicable recovery priorities. Coverage is J / (S + J). Let p be the premium fraction read from the vault’s configured premium curve at that coverage.
The ordinary allocation is:
Senior gain = R × S / (S + J) × (1 − p)
Junior gain = R − Senior gainThe premium acts on Senior’s proportional share. A 30% premium does not mean Junior receives only 30% of the total gain.
Worked example
Illustrative inputs: S = 80,000, J = 20,000, R = 1,000, p = 30%.
| Step | Senior | Junior |
|---|---|---|
| Proportional gain before premium | 800 | 200 |
| Premium transferred | −240 | +240 |
| Allocated gain | 560 | 440 |
| Return on tranche value for this period | 0.7% | 2.2% |
All amounts in the first three rows are USDC. The two allocated gains sum to 1,000. Senior receives more USDC, while Junior earns the higher return per unit of capital. The percentages are returns for this illustrative period, not APY.
Why coverage matters
The premium curve contains coverage points and interpolates between them, subject to its endpoints. A thinner Junior cushion can receive a higher premium rate. But Junior’s return also depends on the amount of Junior capital sharing that result.
The curve belongs to the vault. A generic example cannot establish the premium for another vault or for the same vault after coverage changes. A positive gross source yield also cannot establish that R is positive after costs and losses.
Recovery takes priority
Senior impairment is restored before the ordinary gain split. Junior’s tracked incident losses have a narrower restoration rule: qualifying recovery value from impaired legs can restore them after Senior. Ordinary yield on healthy positions does not automatically repay all historical Junior losses before other participants earn again.
For a negative result, use the loss waterfall, not the positive-result formula with a negative input.
What to compare
Separate underlying source rate, portfolio-weighted expected rate, tranche expected rate and realised share-price change. Cash awaiting deployment can make actual holdings differ from targets. Yield explains the public-facing rate labels. Coverage and limits explains admission constraints.