Markets and Tranches
Lotus organizes lending around markets and tranches. A market defines what can be lent and borrowed; tranches within that market let participants choose their own risk-return tradeoff.
What is a market?
A market is defined by a shared set of components:
Loan token: the asset lenders supply and borrowers borrow.
Interest rate model (IRM): the logic that determines borrow rates.
Liquidation module: the logic that prices and executes liquidations.
A market also has a risk-ordered set of tranches. Tranches are the units that express risk choices.
What is a tranche?
A tranche is one risk configuration inside a market. Tranches are ordered by risk:
Senior tranches (lower risk)
Junior tranches (higher risk)
Each tranche can have its own:
Collateral token
Oracle (used for loan health checks)
LLTV (liquidation loan-to-value threshold)
The LLTV determines when a position becomes eligible for liquidation. If a position's loan-to-value ratio (LTV) exceeds the LLTV, it can be liquidated.
In general:
A higher LLTV gives more borrowing power, but less safety margin for lenders.
A lower LLTV gives less borrowing power, but more safety margin for lenders.
What is a risk axis?
A risk axis describes what distinguishes tranches within a market. The most common risk axis is LLTV. These are called LLTV Ordered Markets. Lotus supports several risk axes:
LLTV Ordered Markets
Collateral Quality Ordered Markets
Oracle Sensitivity Ordered Markets
Currently, all markets on Lotus are LLTV Ordered.
What changes across different LLTV Ordered tranches?
For borrowers, the tranche affects:
how much can be borrowed for the same collateral
how close a position is to liquidation at a given price move
the borrow rate (higher risk tranches have higher borrow rates)
For lenders, the tranche affects:
the risk underwritten
the expected return profile (subject to demand and utilization)
Tranches let lenders and borrowers choose their own risk-return tradeoff within a single, deep market.
Next: Read Liquidity flow to understand how Lotus keeps liquidity connected across tranches.
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