How Plimsoll works

An ERC-4626 vault gives every depositor the same thing: the same yield, and the same exposure to whatever goes wrong. That is one product for two very different appetites. Someone who wants a predictable return and someone who wants to be paid for taking risk are forced into the same position, and the curator collecting a fee on the way past is usually in neither.

Plimsoll takes one vault and one maturity and issues two ERC-20 claims against it.

• Senior — above the line. Paid first at settlement, up to principal plus a fixed rate struck when the series locks. It gives up the vault’s upside and, in exchange, sits behind the junior tranche’s whole balance.
• Junior — below the line. Paid last, out of whatever remains. It earns the entire pool’s return minus the senior’s coupon on a base of only its own capital, which is leverage in both directions, and it absorbs every loss until it is gone.

Both sides deposit the same vault shares. Only the order of payment differs — and that order is the whole product.

The attachment point is the loss the pool can take while the senior tranche still walks away whole. It is set by how much junior capital showed up, less the senior’s coupon. Below it, the junior is absorbing everything. Above it, the senior begins to take losses too — protection is real, but it is never infinite.

Nobody governs the senior rate into existence. Two mechanisms discover it, and a series picks one when it is created.

The descending clock. It opens at a senior rate so generous that almost nobody wants the other side, and falls from there. A low senior rate is exactly what makes the junior side attractive, so protection arrives as the clock descends. The instant coverage reaches its target the book freezes, and whatever the clock reads is the clearing price — the highest senior rate that attracted enough protection. If the clock runs out, the series prices at its reserve.

The utilisation curve. Read the market as a lending market: the junior borrows senior capital to lever itself, so utilisation is the senior share of the pool. The curve is gentle below its kink and steep above it, which is another way of saying that thin coverage is expensive coverage.

1. 1Subscription. Both sides deposit and receive their claim. Deposits and withdrawals are open, and the price is still moving.
2. 2Clearing. Coverage hits its target and the book freezes — no late senior deposit may dilute the protection the price was struck against.
3. 3Lock. The rate is fixed, principal is recorded, and the term starts. Anyone may call it.
4. 4Settlement. At maturity the waterfall runs once: senior up to its cap, junior the remainder. Both claims become redeemable.

A series never rolls itself. The next epoch is a new series, so a holder who has not yet redeemed can never be diluted by the next book. If a book closes without the minimum coverage, it is voided and everyone withdraws at par.

Whoever takes the fee never takes the loss. A Plimsoll series can require its curator to hold a minimum share of the junior tranche before it is allowed to lock — the fee-taker has to stand below the line with everyone else, and the requirement is enforced on chain rather than promised in a blog post. The protocol fee, where one is set, is taken only from junior profit: never from principal, and never from the senior tranche.

• Protection is finite. A loss past the attachment point reaches the senior tranche. Plimsoll bounds the risk; it does not delete it.
• The underlying vault is the underlying vault. Plimsoll redistributes an ERC-4626 vault’s outcomes. If that vault is broken or malicious, both tranches inherit it.
• Capital is locked for the term. There is no early exit from a live series through the protocol. The claims are ordinary ERC-20s, so exit means selling them.
• The code is unaudited. Treat it accordingly.