Add an Idle Yield Tranches Cauldron


This proposal aims to discuss the integration of the Senior Yield Tranches ERC-20 tokens of the DAI, USDC and USDT single-side stable markets as collateral to mint MIM.



Idle’s background

Idle is a DAO and a decentralized set of products that step up DeFi by reimagining how risk and yields are managed. It does so by aggregating the best-performing returns on the Best Yield vaults and by offering risk-adjusted solutions with Yield Tranches.

Idle’s goal is to empower the DeFi credit market with robust yield automation and hedging instruments, facilitating its expansion and establishing a foundation for sustainable financial ecosystems.

Yield Tranches overview

Current on-chain credit markets offer an uneven diversification for liquidity providers, resulting in a suboptimal service. That’s why Idle released in 2021 Yield Tranches: a new DeFi primitive that allows to segment yields and risks on any DeFi yield source, catering to a diverse range of users by offering two risk-return profiles, Senior and Junior:

  • Senior YTs withhold part of the yield generated in exchange for funds coverage, given by the Junior class’ liquidity. The retained yield is then distributed to the Junior YT. Senior holders benefit from a full spectrum coverage on smart contracts and financial risks related to YTs themselves, underlying yield sources, and all their dependencies.
  • Junior YTs, on the other hand, provide greater returns, as they are compensated by the Senior counterparty with a higher share of yield for the coverage provided.

Yield Tranches offer built-in, DeFi-oriented features such as the on-chain default settlement and the adaptive yield split across Senior and Junior Tranches based on the liquidity deposited on each side. YTs contracts are present on Ethereum, Polygon zkEVM and soon Optimism with the intention to deploy the codebase on other L2s.


Integrating the YTs LP tokens as collateral would create a two-sided effect for Yield Tranches:

  • Extending liquidity through MIM with Senior Tranche tokens would incentivize users to deposit on that side creating a solid and stable liquidity base
  • The funds flowing to the Senior side will draw new Junior liquidity deployments thanks to the boosted APYs generated

Idle has already started discussing this possibility with the partner institutions and the majority showed interest in further using the YTs LP tokens. We can then expect an increase in the MIM borrowing activity linked to the YTs tokens, backed by stable yields higher than 5%.

Risk analysis

There are multiple risks connected to the Yield Tranches, and Idle DAO is working proactively to reduce and mitigate each risk as much as possible:

  • Oracle risk: Yield Tranches do not rely on external oracles. Yield Tranches’ LP token prices are fully on-chain. YTs prices can be found by calling the function virtualPrice, i.e. function #43 from every CDO contract address, using as parameters the AA LP token address for the Senior Tranches or the BB LP token address for the Junior Tranches specific to each Tranche.
  • Counterparty risk: The implementation for each Tranche can be upgraded through a shared Proxy Admin, which is 0x9438904ABC7d8944A6E2A89671fEf51C629af351. The owner of the Proxy Admin and of Yield Tranches’ contracts is the Treasury League multisig, which is 0xFb3bD022D5DAcF95eE28a6B07825D4Ff9C5b3814. The multisig is made part of 6 owners composed of 5 core contributors and 1 advisor. Any transaction requires the confirmation of 3 out of 6 signers.
    Proposals to improve and update Idle’s protocols follow these steps: off-chain temperature check on Snapshot, on-chain voting phase on Tally (for the strategies controlled by the DAO, as for example Senior Best Yield). A complete overview of the Idle DAO governance processes can be found here.
  • Smart contract risk of YTs: Yield Tranches have been audited multiple times by auditing firms, such as Consensys Diligence and Certik and independent auditors. A full overview of Idle’s audits is available here.
    Additionally, Idle has two active bug bounty programs with Immunefy and Hats Finance.
    New Tranches are first tested in beta and then released in the main Idle’s dApp. An overview of the security management policy of Yield Tranches can be found here.
  • Smart contract risk of the yield strategies: Idle selects platforms for yield generation that have a proven track record, have been audited, have solid TVL and maintain a bug bounty program. Additionally, Idle DAO has established a Risk Framework to standardize analyses of new underlying markets to be integrated into Yield Tranches by quantifying and assessing the risks related to new underlying strategies. This framework comprises four sections that lead to a final rating: 3rd party review, internal security review, strategy review and coverage.

Cauldron parameters

The Cauldron parameters (interest, LTV and fees) will be decided after community discussion.


The three Senior markets candidates for integration have the following metrics in the last 6 months

Side Asset TVL Average APY
Senior DAI $5.63m 7.42%
Senior USDC $3.10m 5.47%
Senior USDT $1.93m 6.38%

Next steps

We would like to gather the sentiment of the Abracadabra community toward this proposal of YTs LP token integration either on Ethereum, Polygon or Optimism.

This post will be open for discussion and if there are no objections, we will proceed with the subsequent governance steps.