Introduction

The field of DeFi is innovating products at an astonishing speed. Having the right DeFi products is crucial to reducing risk in the volatile crypto world. Both professional investors and novices need tools to help them manage their assets steadily. Therefore, the market demand for innovative and robust asset management protocols is constantly growing.

DeFi asset management protocols aim to break down the complexity of traditional asset management tools and rebuild them to incorporate the efficiency and transparency of blockchain contracts, allowing individuals to easily customize investment portfolios suitable for their needs and enjoy returns. However, there are still many unresolved issues in the DeFi field. For instance, the DeFi market currently lacks options that offer stable investment returns with almost no investment losses for risk-averse users.

Mainstream liquidity mining products often come with impermanent loss due to price fluctuations, which can further amplify the actual rise in volatility. Active investors seek to maximize investment returns through leverage. However, DeFi leverage futures products cannot match, settle, or force liquidation in real-time as centralized exchanges do due to high on-chain gas fees and congestion in extreme market conditions. In this context, Tranchess emerged.

What is Tranchess (CHESS)?

As a well-established DeFi protocol that has been operating since 2021, Tranchess is centered around an asset management tool. The initial version, V1.0, was built on the Binance Smart Chain (BSC) and could only accept BTCB (the wrapped BTC on the BSC chain) as the underlying asset. It has now been upgraded to V3.0, capable of running on the BNB Chain, Ethereum, and Scroll (an Ethereum Layer 2), and can accept various crypto assets such as BTC, ETH, BNB, and even the stablecoin USDC as underlying assets. Tranchess targets cryptocurrency investors by splitting a single investment target into multiple derivative investment tools, offering different risk-return solutions for platform users.

When users deposit crypto assets on the Tranchess platform, the protocol establishes a single mother fund based on the user’s assets and splits it into different risk and return matrices. Inspired by the traditional financial “tranche” funds, Tranchess’s tokenized fund protocol can provide users with diverse fund products to meet different risk and return preferences.

The Tranchess protocol is not only an independent asset management system but also offers many functionalities required in the DeFi field, such as single-asset liquidity mining, lending, and trading. In February 2024, Tranchess announced a partnership with the leading liquid staking platform Lido Finance to launch two new staking products, StaYETH and TurYETH, providing investors with diversified options to earn returns on their staked Ethereum (ETH). In April, Tranchess collaborated with StakeStone and Scroll and launched the Tranchess STONE mother fund and its tranche fund products, offering customized asset management solutions for STONE points and rewards on the Scroll network.

Project Background

Founded in 2020, Tranchess was officially launched in 2021. At that time, the concept of “tranche funds” was relatively novel in the DeFi field and was boosted by the FOMO sentiment in DeFi during the 2021 bull market. Because of this, the project’s Total Value Locked (TVL) soared, reaching nearly $2 billion at one point. However, it later dropped by over 90% due to the bear market. Entering the current bull market, the collaboration with Lido Finance has driven the platform’s TVL, which currently (as of June 2024) remains stable at around $280 million.

Source: DeFi Llama

The Tranchess team, with diverse backgrounds and experiences, consists of blockchain and financial experts from around the world. According to their official website, the core team members come from the TradFi sector, including investment banks, asset management companies, and hedge funds, with past roles such as traders, investment managers, and strategy researchers, among others. The technical team hails from tech giants like Google, Meta (formerly Facebook), and Microsoft, with rich experience in network security for both centralized exchanges and DeFi protocols.

Tranchess was founded by Danny Chong, who graduated from Nanyang Technological University in 2005 and has over 16 years of banking experience. He has worked at Société Générale, where he was responsible for forex and emerging markets business and APAC product development, and at Crédit Agricole CIB, where he handled forex and fixed income product sales in the SEA region, successfully leading sales, staff, and digital business growth. Besides his financial career, Danny has also founded several health-oriented lifestyle brands in Singapore and Hong Kong, making him a finance-savvy entrepreneur.

In terms of financing, public information shows that Tranchess completed its seed round financing in 2021, raising a total of $1.5 million. This round was led by The Spartan Group (along with the now-bankrupt Three Arrows Capital), with participation from Binance Lab, LongHash Ventures, IMO Ventures, and Comma3 Ventures.

How Does Tranchess Work?

Tranchess is an innovative decentralized financial protocol that combines the advantages of financial derivatives trading and blockchain technology, providing investors with an efficient, transparent, and secure trading environment. The protocol introduces the traditional financial concept of “Tranche,” segmenting the risk-return structure to meet the needs of investors with different risk preferences and investment goals. Each Tranche represents a financial product with a specific risk level and investment return, allowing investors to choose and allocate based on their risk tolerance and investment expectations.

Tranchess consists of three fund tokens: QUEEN, BISHOP, and ROOK, along with its governance token CHESS. Users can create a mother fund (main fund) QUEEN token on the platform using original assets (BTCB, ETH, or BNB). The protocol stakes the user’s original assets on PoS blockchain validator nodes to earn returns, which are proportionally distributed to the fund token holders within the protocol. (BTCB is wrapped BTC on the BNB chain.)

Source: Tranchess Website

Then, QUEEN holders can evenly split it into two sub-funds: one is the high-yield tokenized fund BISHOP for risk-averse investors, and the other is the leveraged exposure token ROOK for risk-seeking investors.

The essence of the BISHOP token is risk-free stable returns, similar to high-yield stablecoins (USDC), suitable for investors who do not wish to take risks. In contrast, ROOK is a risk token providing 1.5x to 2x leverage. ROOK gains leveraged exposure and amplifies risks and returns by borrowing the underlying assets of BISHOP and paying interest. Therefore, BISHOP tokens perform better than directly holding stablecoins because they earn returns from both the interest paid by ROOK and the CHESS rewards from staking BISHOP.

To prevent ROOK leverage failure or a sharp decline in net value, Tranchess employs a Rebalance mechanism, adjusting the quantities of ROOK and BISHOP and using QUEEN tokens to restore the leverage ratio. Rebalance is triggered when the net value ratio of ROOK to BISHOP exceeds 2 or falls below 0.5, meaning the asset has increased by more than 100% or decreased by more than 25%. This mechanism, combined with PoS staking, increases the mother fund’s yield, providing downside protection for ROOK holders.

Here is a simple flowchart explaining how Tranchess works:

Source: Tranchess Medium

Tranchess users stake crypto assets (such as BTCB, ETH, or BNB) in the protocol to create QUEEN main fund tokens. QUEEN holders can choose to split into BISHOP and ROOK sub-fund tokens for different risk-return configurations. Conversely, BISHOP and ROOK can be merged back into QUEEN. The value exchange process among the three fund tokens uses a Time-Weighted Average Price (TWAP) and relies on a trusted decentralized oracle network (such as Chainlink) to avoid abnormal prices.

Source: Tranchess Website

Lastly, it is notable that QUEEN is designed for long-term cryptocurrency holders, continuously tracking the price changes of the underlying assets. However, compared to directly holding the underlying assets, holding QUEEN can yield higher returns through CHESS distributions and validator node earnings on PoS blockchains. Notably, for QUEEN, BISHOP, and ROOK, users can stake them on the platform to earn additional CHESS token rewards. CHESS holders receive a portion of the fees collected by the Tranchess protocol as rebates. Tranchess offers better asset efficiency for crypto asset holders. When investors want to exit the protocol, they can simply convert QUEEN tokens back into the underlying assets.

Development History

The concept of Tranchess was initially conceived in early 2020 and officially launched on BSC in 2021. Since its inception, the protocol has experienced significant fluctuations in TVL and has undergone three major upgrades.

Tranchess V1.0 ran on the BSC chain, using BTC prices as the underlying asset for the fund. Fund exchanges with stablecoins (Tranchess Swap) were conducted through TWAP and an order matching system. While this process was secure, the algorithm was overly complex, and subscribing to or redeeming QUEEN required waiting for specific times.

In 2022, Tranchess V2.0 was upgraded. It optimized smart contracts and adopted an AMM form for Tranchess Swap. With the introduction of the V2.0 AMM liquidity pool, liquidity for the three funds in Tranchess was significantly enhanced. Users could quickly swap between stablecoins and BISHOP/ROOK and subscribe to and redeem QUEEN in real-time.

Tranchess V3.0 introduced support for Ethereum liquid staking, allowing users to deposit tokens from liquid staking protocols like Lido’s stETH/wstETH and earn corresponding wrapped liquid staking token yields. This enhancement is expected to attract more users to the Tranchess platform and increase its liquidity.

As its official development roadmap shows, Tranchess will focus on creating new derivatives and expanding business collaborations. The emphasis will be on providing broader support for various crypto assets and enhancing token use cases.

Source: Tranchess Whitepaper

Tokenomics

CHESS, serving as a native and governance token, is currently issued on BSC but following the ERC-20 standard. CHESS holders can obtain the utility token veCHESS by locking their CHESS. The more CHESS locked or the longer the lock period, the more veCHESS is obtained.

Currently, the CHESS token is used for three main purposes, all requiring veCHESS:

1. Voting weekly to decide the yield sharing between BISHOP and ROOK holders.
2. Earning weekly rebates, which come from 50% of the fees within the Tranchess platform (excluding Gas fees).
3. Earning additional CHESS token rewards by staking QUEEN/BISHOP/ROOK, with veCHESS holders receiving boosted rewards.

The total supply of CHESS tokens is 300 million, distributed as follows:

Source: Tranchess Whitepaper

• Core Team: 20%
• Seed Investors: 5%
• Future Investors: 15%
• Community Incentives: 50%
• Ecosystem and Project Vault: 10%, with the direction including but not limited to partnerships, third-party services, and listing fees.

CHESS tokens will be issued over four years, with the issuance rate gradually decreasing. The 50% community incentives portion serves as liquidity mining rewards, distributed on PancakeSwap and the Tranchess App. According to the whitepaper, out of the 150 million tokens, 120 million are being distributed on the Tranchess application. CHESS is allocated to QUEEN, BISHOP, and ROOK holders in a fixed 3:4:2 ratio.

Is CHESS a Good Investment?

With the rise of liquid staking narratives, the well-established DeFi project Tranchess has once again become a focal point in the market. Although the team has performed steadily over the past few years, and the protocol has passed security audits from third parties like PeckShield and CERTIK, along with other security measures, there are still key considerations to evaluate before investing in CHESS tokens.

Source: Tranchess Website

The value of CHESS tokens is subject to market demand and supply. Price increases typically reflect rising market demand. Looking ahead, according to the development roadmap outlined in the whitepaper, Tranchess plans to further support tracking more underlying crypto assets and develop innovative derivatives and fund structures. Overall, Tranchess aims to attract more users and drive the value of its tokens by continuously innovating and expanding its business.

Additionally, it is crucial for investors to understand the principles and technology behind the Tranchess protocol. Currently, the protocol operates on limited blockchains, and the token lacks broader use cases, which might affect market adoption. Moreover, whether CHESS is a worthy investment depends on your knowledge of the cryptocurrency market and your risk tolerance. Before purchasing, you should do a comprehensive research on CHESS’s background information, market trends, and development plans. It’s also significant to recognize the high-risk nature of the cryptocurrency market and make informed decisions based on your investment goals.

How to obtain CHESS?

To own CHESS tokens, you can earn them through the Tranchess protocol, or purchase them on centralized cryptocurrency exchanges like Gate.io. First, you need to create a Gate.io account, complete the KYC process, and fund your account. Then, you can follow the steps to buy CHESS.

• Check today’s CHESS trading pair price here: CHESS/USDT

Conclusion

Having been operating since 2021, Tranchess is a well-established DeFi protocol. It is built on the BNB Smart Chain (BSC) and is designed for asset portfolio tracking and management. The protocol offers users different risk-return options by splitting a single investment asset (such as BTC, ETH, or BNB) into multiple derivative investment tools (QUEEN, BISHOP, and ROOK). It is characterized by a tranche fund structure inspired by traditional finance, high capital efficiency, transparent on-chain transactions, support for various mainstream crypto assets, and a secure and stable operational team.

CHESS, as the native token of Tranchess, aims to provide investors with an easy way to participate in the cryptocurrency market. CHESS holders can earn a share of the protocol’s revenue, participate in protocol governance, and vote on decisions. The company’s goal is to combine traditional finance with blockchain technology, offering users more stable and secure investment options. Although Tranchess presents innovative potential and promising development prospects, investors should consider the risks of the cryptocurrency market, the protocol’s future development, and the value fluctuation risk of CHESS tokens before investing in its native token CHESS.