# 1. Overview

Royco Dawn is a non-custodial risk-tranching protocol. It takes a given yield source—a lending market, a staking deposit, a tokenized RWA fund—and splits it into two risk tranches:

* **Senior** — earns yield with smart-contract-enforced downside protection. A defined amount of Junior capital absorbs losses before Senior is ever impacted.
* **Junior** — earns higher yield by serving as first-loss capital and receiving a risk premium paid by Senior in return.

<figure><img src="https://1739671157-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FwYKkEq3QXfHAg17OipKm%2Fuploads%2FDol0gfme9NX4ONMZR31a%2Fdiagram-1-tranching.svg?alt=media&#x26;token=c74c2efc-145a-4f8f-92ab-9c6b15f8799a" alt=""><figcaption></figcaption></figure>

#### **The Yield Distribution Model**

The yield that flows to each tranche is set by a dynamic distribution model. It works similarly to how lending markets price interest rates:

In a lending market like Morpho or Aave, when utilization is high, supply rates rise to attract more lenders. When utilization is low, rates fall. The market finds equilibrium.

**In Dawn, utilization measures how much Junior capital is currently backing Senior exposure.** When Junior capital is scarce, more yield flows to Junior—attracting more first-loss capital. When Junior is abundant, more yield flows to Senior—attracting more protected capital. The pool rebalances toward equilibrium based on where each side wants to deploy.

<figure><img src="https://1739671157-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FwYKkEq3QXfHAg17OipKm%2Fuploads%2FFVNRVspglsPNG4dsyP1W%2Fdiagram-2-utilization-curve.svg?alt=media&#x26;token=ec17de5d-bf2a-4e92-bd36-32d08a82e1a9" alt=""><figcaption></figcaption></figure>

#### Why Does This Matter?

**Seniors get smart-contract-enforced downside protection.** Every Senior position has a quantified Junior buffer defined in the protocol's contracts. This gives risk committees a concrete, verifiable loss-absorption layer when evaluating yield sources they might otherwise be prevented from getting exposure to.

**Senior protection starts from the first dollar of loss.** There is no deductible mechanism. Junior capital absorbs any Senior drawdown, from the very first dollar, up to the full coverage amount.

**Juniors benefit from an observation period.** When the underlying strategy draws down, the protocol enters a time-bounded observation window before allocating losses. Temporary volatility that reverses within the window does not reduce Junior capital. Juniors only absorb actual, persistent losses—not noise.

**Juniors earn a premium for risk they already underwrite.** Every yield source Dawn tranches already has LPs depositing into it directly. Dawn lets those same participants earn a risk premium for formally taking the first-loss position, rather than simply accepting the base rate. Yield sources, RWA issuers, and protocols can also integrate with Dawn to offer tranched versions of their products to a broader investor base.

#### The Vault Products

For investors who do not want to evaluate and manage individual Dawn markets, the protocol offers managed vaults. These are the primary entry point for most depositors.

| Vault                         | Deposit Asset | What It Does                                                                                                                 |
| ----------------------------- | ------------- | ---------------------------------------------------------------------------------------------------------------------------- |
| Dawn Senior Vault (srRoyUSDC) | USDC          | Allocates across multiple Senior tranches for diversified, protected yield                                                   |
| Royco ETH (roywstETH)         | wstETH        | Borrows USDC against wstETH collateral and deploys into srRoyUSDC, earning staking rewards plus the carry spread             |
| Staked Royco ETH (sroywstETH) | roywstETH     | Loops roywstETH as collateral to borrow additional ETH-denominated assets, amplifying carry spread exposure through leverage |

The Dawn Senior Vault (srRoyUSDC) is the foundational product — it deploys USDC into Senior tranches across a diversified set of yield sources, offering protected yield backed by Junior first-loss capital. Royco ETH (roywstETH) is built for ETH holders who want to earn yield without selling their ETH: it borrows USDC against wstETH collateral and deploys the proceeds into srRoyUSDC, capturing staking rewards plus the carry spread. Staked Royco ETH (sroywstETH) extends this further by looping roywstETH as collateral to borrow additional ETH-denominated assets, amplifying carry spread exposure through leverage. Each vault is managed by a professional, independent curator.&#x20;

***

*This document is provided for informational purposes only and does not constitute investment advice, a solicitation, or an offer to sell any securities or financial instruments. Participation in Royco Dawn products involves risk, including the potential loss of all capital deployed. Prospective participants should conduct their own independent due diligence and consult with qualified legal, financial, and tax advisors before making any investment decisions.*