Index and Junior Pools
An approved borrower assigned with a coverage ratio may set up a Junior Pool, and access liquidity from the Index Pool. Each junior pool represents a unique borrower, asset type and loan terms. The Index Pool, similar to an Exchange Traded Fund (“ETF”), is a communal pool that allocates liquidity to each Junior Pool automatically according to the specified coverage ratio.
The Index Pool is the senior tranche of the loan facility, and the Junior Pool is the junior tranche of the loan facility. In case of default, the Junior Pool takes the first loss.
For example, a borrower approved for a $1,000,000 loan facility with 20% coverage ratio may set up a $200,000 Junior Pool ($200K / $1M = 20% coverage), and access the remaining $800,000 from the Index Pool. The Junior Pool provides 20% downside protection (20% coverage) in case of default.
Lenders may supply capital to any Junior Pool (borrower) directly for higher yield/risk, or diversify risk exposure by lending to the Index Pool for lower yield/risk.
Borrowers may launch Junior Pools denominated in USDC, BUSD or USDT, and will receive allocation from the index pool denominated in the same currency. For example, a Junior Pool denominated in USDC will only receive allocation from the USDC Index Pool.