Vault Wrapping

Sometimes, due to design choices made regarding the Symbiotic Vault to either hold security guarantees or optimize the whole interaction flow, it's not possible to implement some your ideas in a standard way. In such cases, it is possible to wrap the Symbiotic Vault in sense of, e.g., deposits, slashing, opt-ins, etc. This page presents such example cases:

Mortgage-backed Security Example

A mortgage-backed security (MBS) is a financial instrument created by pooling together many individual home loans (mortgages) and selling them as a single tradable security. Instead of a bank holding a mortgage and collecting monthly payments, the cash flows (interest and principal) from thousands of mortgages are bundled, then redistributed to investors in the MBS.

• Tranching: To cater to different investor risk appetites, the pool is divided into tranches.
  • Senior tranches: Get paid first, lower risk, lower yield.
  • Junior tranches: Get paid later and absorb defaults first, higher risk, higher yield.
• Risk distribution: This structure spreads default risk across different investor groups and creates a market for varying levels of risk exposure.

Slashing Tranche-Based Vault Wrapper

In Symbiotic, slashing vaults are pools where collateral is staked to secure external networks or services. Just like mortgages carry default risk, staking carries slashing risk (collateral may be cut if operators misbehave).

Here’s how the analogy works:

• Mortgages = Operator Collateral Positions Each mortgage in an MBS corresponds to an individual operator’s staked collateral in Symbiotic. Just as homeowners may default, operators may be slashed.
• MBS Pool = Slashing Vault The pooled mortgages in an MBS map to the vault of collateral in Symbiotic. Both aggregate risk into a collective structure.
• Tranches = Vault Risk Segmentation Symbiotic vaults could be designed with tranches similar to MBS:
  • Senior tranche: Investors who want safer exposure get priority in withdrawals and protection against small slashes (absorbed by junior tranches first).
  • Mezzanine tranche: Medium-risk exposure, takes losses only after juniors are hit.
  • Junior tranche: Risk-seeking investors absorb slashing losses first but get higher yield (greater share of staking rewards).
• Cash Flows = Staking Rewards Just as mortgages generate interest payments, collateral in slashing vaults generates staking rewards or fees. These flows are redistributed to participants, depending on their tranche.
• Risk Transformation MBS transform mortgage default risk into tiered securities with different profiles. Symbiotic vaults could similarly transform slashing risk into structured exposure, letting risk-averse and risk-seeking participants coexist in the same vault.

Implementation

A user (staker) would have 3 choices to deposit a single ERC20 asset (collateral) into a Symbiotic vault. They can either deposit into the junior, mezzanine or senior tranche, according to their risk-profile or portfolio fit. The vault wrapper contract would then deposit the collateral to the Symbiotic vault, and the user would receive (or not, depending on the curator choice) an LST.

From our understanding, there may be 2 possibilities to issue the receipt token:

• When a user deposits, they choose the tranche (junior, mezzanine, senior).
• The wrapper mints them only that tranche token (LST).
• Example:
  • Alice deposits 100 USDC → gets 100 tJNR.
  • Bob deposits 100 USDC → gets 100 tSNR.

• Users deposit into the wrapper without selecting a tranche.
• The wrapper automatically allocates the deposit across junior, mezz, and senior according to some fixed ratio (e.g., 20/30/50).
• The user receives one unified wrapper-LST (e.g., tWRAP).

The entire paper, co-authored with ReSquared can be found here: https://github.com/dias-henrique/Slashing-Insurance-Vaults/blob/main/CESIV.pdf