Pool Interest Rates

Pool-Level APY Dynamics

The aggregate variable rate earned by the pool is:

$$\text{IR}_{\text{Pool}} = W_{\text{Aave}}\;\text{IR}_{\text{SOFR}} + \sum_{n=1}^{N} W_{n}\,\text{IR}_{n}$$

where

$$\begin{aligned} W_{\text{Aave}} &: \text{ idle liquidity in Aave (earns }\text{IR}_{\text{SOFR}}\text{)} \\[2pt] W_{n} &: \text{ weight of position }n \text{ (a credit line or facility)} \\ &: \bigl(\sum_{n} W_{n}=1-W_{\text{Aave}}\bigr) \end{aligned}$$

Whatever the pool earns is then split between the senior (USD3) and junior (sUSD3) tranches.

USD3 and sUSD3 APY

In traditional tranching, the senior earns a fixed coupon and the junior takes the residual — the junior absorbs all the variance to keep the senior's rate constant. 3Jane works differently. A single tranche share variant (TRANCHE_SHARE_VARIANT), denoted s, splits pool interest in fixed proportions, so both tranches earn a variable rate that floats with what the backing generates:

$$\text{IR}_{\text{USD3}} = \frac{(1-s)\,\text{IR}_{\text{Pool}}}{W_{\text{USD3}}}, \qquad \text{IR}_{\text{sUSD3}} = \frac{s\,\text{IR}_{\text{Pool}}}{W_{\text{sUSD3}}}$$

$$\begin{aligned} s &: \text{tranche share variant — the junior's fixed fraction of pool interest} \\[2pt] W_{\text{USD3}}, W_{\text{sUSD3}} &: \text{capital weights of each tranche } (W_{\text{USD3}}+W_{\text{sUSD3}}=1) \\[2pt] \end{aligned}$$

The junior receives the fraction s of pool interest; the senior receives the remaining 1 − s. Two consequences follow:

• The senior (USD3) coupon is variable. Because USD3 takes a fixed proportion rather than a fixed rate, its APY rises and falls with pool yield. There is no promised fixed rate to defend.

• The junior (sUSD3) is more compelling. The junior never has to give up part of its share to top a fixed senior coupon back up to target. It keeps its full slice of upside when the pool earns more — and, as first-loss capital, bears the downside when the pool earns less or takes losses.

USD3 can be redeemed up to the tranche ratio, and remains senior in the waterfall: losses hit sUSD3 before USD3.

Example

Take a pool generating 13%, with capital weights 85% USD3 / 15% sUSD3 and a tranche share variant of s = 0.30 (30% of pool interest to the junior, 70% to the senior):

Pool yield	→ sUSD3 (junior, s = 0.30)	→ USD3 (senior, 1 − s = 0.70)
13%	30% × 13% over 15% of capital → ≈ 26.0%	70% × 13% over 85% of capital → ≈ 10.7%
15%	30% × 15% over 15% of capital → ≈ 30.0%	70% × 15% over 85% of capital → ≈ 12.4%

The split percentages are fixed; the resulting APYs move with the pool. 3Jane is not promising the senior any particular rate — when the backing generates more, both tranches earn more, and when it generates less, both earn less.

Figures are illustrative; the tranche share variant and pool yield are parameters that change over time.