Imagine launching a new yield bearing asset. You have two ways to bring it into lending markets. You can list the underlying directly, asking lenders to underwrite the full risk of the strategy. Or you can list a Senior tranche, offering a collateral profile with first-loss protection and lower realized volatility.
The underlying may offer higher yield, but the Senior tranche supports higher LTVs, unlocks more integrations, and enables more capital-efficient leverage.
For you, the issuer, this is the whole point. More TVL, more revenue, from a strategy you already run. Here’s how it works:
If you issue a yield bearing asset, the fastest way to grow TVL is to make it better collateral. Lending markets don’t reward yield. They reward collateral quality. That’s why most yield bearing assets get conservative LTVs, or never get listed at all.
Every lending market asks the same question:
If we have to liquidate this collateral tomorrow, how confident are we that we’ll recover the loan?
The answer determines the asset’s LTV. Two things matter most:
Risk. How much can the asset lose before the loan is repaid?
Liquidity. Can the collateral be sold quickly without significantly impacting its price?
For yield bearing assets, lenders aren’t just evaluating the token, they’re underwriting the strategy behind it. The more uncertainty, the more conservative the collateral parameters become.
A Senior tranche gives lending markets a different asset to underwrite. Instead of taking the full risk of the underlying strategy, they receive first-loss protection through Junior capital.
That creates a stronger collateral profile:
Lower downside risk.
Lower realized volatility.
Onchain-verifiable first-loss protection.
These are exactly the characteristics lending markets reward with higher LTVs.
Consider the same asset listed in two different ways.
The underlying asset is accepted at a 60% LTV, while the Senior tranche, with first-loss protection and lower realized volatility, could be accepted at an 85% LTV.
That gap comes from the Junior tranche. Junior absorbs the strategy’s first losses, so the lender underwrites a smaller drawdown on the Senior than on the underlying, and prices a higher LTV against it.
That difference dramatically changes how efficiently users can leverage the asset. At a 60% LTV, the maximum theoretical loop is around 2.5x. At an 85% LTV, it increases to roughly 6.7x.
In practice, the same $10M of user equity can generate approximately $25M of deposits into the underlying strategy when using the underlying asset, or up to $67M when using the Senior tranche.
At the same time, the improved collateral profile makes the Senior tranche a stronger candidate for structured products, and other protocols that may not have integrated the underlying asset directly. Each new integration creates another source of demand, attracting more deposits and further increasing TVL.
Collateral quality is only half the equation. Collateral also needs to be liquid.
This remains one of the biggest challenges for RWAs and other yield bearing assets, where redemption windows and limited secondary liquidity often restrict lending adoption. Royco’s roadmap addresses both.
Dawn improves collateral quality through Senior and Junior tranches.
Dusk is designed to improve liquidity, allowing lenders to exit Senior positions without depending on the redemption schedule of the underlying asset.
Together, they create collateral that’s easier to underwrite, easier to integrate, and easier to hold.
Better collateral. More TVL, more integrations, and more capital-efficient leverage, from a position you already run.
The strategy is already yours. A Dawn market is how it becomes better collateral.