Yield tranching involves dividing a pool of assets into different tiers or “tranches,” each with varying levels of risk and return. Investors can choose their preferred tranche based on their risk appetite.In this system, higher-risk tranches usually offer higher potential yields. These are often the first to absorb losses, protecting lower-risk tranches. Conversely, the lower-risk tranches are more secure but usually yield lower returns.This approach helps cater to a diverse group of investors. For those looking for stable, less volatile returns, they can opt for the safer options. At the same time, risk-tolerant investors can chase higher yields through riskier choices.Yield tranching enhances liquidity and increases efficiency within asset pools, making it easier for investors to align their financial goals with their investment choices. By structuring yields in this way, platforms can attract a broader market and create more tailored investment opportunities.