That’s the core thesis behind a growing push to bring structured finance onchain. Silvio Busonero, advisory lead at Blockworks, published an analysis on July 7 arguing that onchain tranching, while still a sliver of the DeFi lending market, represents one of the most promising growth vectors in decentralized finance.
A tiny slice with outsized ambitions
Onchain tranching accounts for less than 1% of total DeFi lending deposits. In a market where looping, the recursive borrowing strategy that essentially stacks leverage on top of leverage, drives roughly 40% of DeFi lending revenues, tranching barely registers as a rounding error.
But Busonero’s argument isn’t about where tranching is today. It’s about what it represents: the DeFi equivalent of a $15 trillion structured finance market in traditional finance.
The mechanics work like this. A lending pool gets split into tranches with different risk profiles. Junior tranche depositors absorb losses first, acting as a cushion for senior tranche depositors who sit higher in the repayment waterfall. In exchange for taking on that first-loss risk, junior participants earn higher yields. Senior participants get lower but more stable returns with built-in protection.
