Introduction To Saffron Finance

March 15, 2021
June 7, 2022

Saffron Finance is a peer to peer risk exchange protocol. The protocol allows its users (i.e. liquidity providers) to customize their risk and return profiles via the use of SFI pool tranches.

Launched in October 2020 by pseudonymous founder "Psykeeper", Saffron Finance is a protocol that allows users (i.e. liquidity providers) to have access to customizable and dynamic risk/reward exposures on the pools that they choose to interact with. The protocol's main use case is to act as an intermediary between liquidity providers and lending protocols, where liquidity providers can provide liquidity to lending protocols through various SFI tranches. The protocol's native token SFI is used to gain access to specified tranches on the protocol via staking as well as to govern the protocol. Upon its upcoming V2 release, SFI holders will also have a future entitlement to protocol fees.

The protocol currently offers 3 tranches for liquidity providers (S tranche, Yield Enhanced A tranche, Risk Mitigated AA tranche). While returns of the A tranche can be meaningfully higher than the AA tranche, in exchange for enhanced return, participants of the A tranche must stake Saffron’s native tokens (SFI) to mitigate against failures on the underlying lending platforms (i.e. Compound or Aave). In the event of a failure of an underlying lending platform, liquidity providers in the riskier tranches will be in a position of first loss, while liquidity providers in more senior tranches are effectively insured. In exchange for this "insurance" liquidity providers in the senior tranches receive a lower yield.