FrameworkMarch 1, 2026~8 min read
One Dial, Three Products: How CVaR Drives Yield, Lending, and Vaults
The CVaR confidence level is a single parameter that sets discount depth, senior/junior splits, collateral haircuts, and vault entry pricing. This post explains how one dial produces four tiers across three product lines.
1. The Framework
RAVA computes a base discount for every tokenized asset using proxy CVaR (market risk) plus an illiquidity premium (fund specific liquidity signals). That base discount corresponds to a CVaR 95 confidence level. But 95% is just one setting on the dial.
The base discount is different for every asset and changes over time as market conditions and liquidity signals shift. The multipliers are fixed. By scaling the base discount with a multiplier, we produce four tiers. Each tier represents a different confidence level: how deep into the tail distribution do you want your protection to reach? Higher confidence means a wider discount, which means more protection but lower yield.
Discount multiplier by confidence tier (% of base discount)
Tighter discount / More riskWider discount / Safer
Multipliers are fixed across all assets. Discount and CVaR values below are mF-ONE as of Feb 28 (base discount 11.10%).
| Tier | Multiplier | Discount* | CVaR* | Character |
|---|
| CVaR 90 | 0.72x | 7.99% | 2.79% | Aggressive |
| CVaR 95 | 1.00x | 11.10% | 3.70% | Standard |
| CVaR 99 | 1.18x | 13.10% | 6.24% | Conservative |
| CVaR 99.7 | 1.42x | 15.76% | 8.58% | Most conservative |
The gap between discount and CVaR is the excess cushion. Using mF-ONE as an example: at CVaR 95, the discount is 11.10% but the expected tail loss is only 3.70%. The remaining 7.40% absorbs illiquidity, model error, and operational friction. At CVaR 99.7, the excess cushion narrows to 7.18% because more of the discount is consumed by tail risk coverage.
A different asset with a different proxy basket, liquidity profile, and redemption structure would produce a different base discount. The multipliers stay the same. The dial works the same way. Only the numbers change.
2. Yield: Senior and Junior Positions
Each CVaR series creates a senior/junior pair. The senior tranche earns a fixed yield and redeems at $100 par. The junior tranche absorbs first loss risk and earns whatever remains after the senior is paid. The discount sets the size of the first loss buffer.
At CVaR 90, the discount is tightest (0.72x base). Junior capital puts up the smallest first loss buffer, so Jr earns the least. Senior holders keep more of the upside because Jr is providing less protection.
At CVaR 99, the discount widens to 1.18x base. Junior capital puts up a much larger first loss buffer, absorbing more tail risk on behalf of the senior position. In exchange, Sr pays more of the upside to Jr. Senior yield is lowest here because Sr is getting the most protection in the system.
Example: Senior yield, Junior yield, and first loss buffer by CVaR tier (illustrative %)
The tradeoff is explicit. A CVaR 99 junior position earns the highest yield but puts up the most first loss capital. A CVaR 99 senior position is the safest allocation in the system: lowest yield, maximum protection. The CVaR dial lets depositors self select into the risk profile that matches their appetite.
3. Lending Pool & Short Selling
The lending module has two sides. Lenders deposit RWA tokens into a pool and earn borrow interest on top of the token's base yield. Short sellers post overcollateralized USDC margin, borrow tokens from the pool, and sell them on RAVA's order book. They profit when the discount widens, when conditions deteriorate and the gap between NAV and market price grows.
Short sellers are not shorting NAV. They are shorting the discount: the illiquidity risk premium. When RAVA's four signals deteriorate (proxy CVaR spikes, bleed rate accelerates, liquidity sleeve drains, queue pressure builds), the discount widens and the short seller buys back cheaper.
For low volatility RWAs like mF-ONE, upside risk is bounded. The token accrues yield at basis points per day. This means margin can be tight, 5% to 15% depending on the CVaR tier, making shorting capital efficient. Interest rates are utilization based: higher pool utilization drives rates up, incentivizing deposits and discouraging borrowing.
USDC Margin = Borrow Value × (1 + Margin Requirement%)
Initial margin % and maintenance margin % by CVaR tier
Liquidation works inversely to traditional lending. A short position is liquidated when the borrowed token's price rises enough that margin falls below the maintenance threshold. At CVaR 90, the maintenance margin is 3%, tight but appropriate for an asset that moves basis points per day. At CVaR 99, the maintenance is 10%, giving more buffer. The negative carry (daily borrowing interest) filters out noise: only conviction shorts maintain positions.
4. Vault: Buyer of Last Resort
The RAVA vault operates at CVaR 99.7, the widest discount and maximum protection. It is the buyer of last resort: when a tokenized asset needs to be liquidated, the vault offers to buy at a price that covers all but the most extreme tail events in five years of proxy data.
For mF-ONE, this means the vault buys at a 15.76% discount to NAV. The CVaR 99.7 expected shortfall is 8.58%, leaving a 7.18% excess cushion for model error, operational friction, and events beyond the historical record.
Vault Entry = NAV × (1 − 15.76%) = NAV × 0.8424
CVaR 99.7 = 8.58% | Excess Cushion = 15.76% − 8.58% = 7.18%
Vault depositors earn yield from the spread between the discounted purchase price and par redemption. Because the vault only buys at deep discounts, capital efficiency is low but loss probability is minimal. This is the most conservative position in the system.
The vault also serves a structural role: it is the backstop that makes lending liquidations possible. Without a buyer willing to take delivery of illiquid RWA tokens at a known price, lending pools cannot enforce liquidation. The vault is that buyer.
5. Putting It Together
One CVaR dial, four tiers, three products. The confidence level determines how much protection each product layer demands, and participants self select based on their risk appetite.
| Tier | Multiplier | Yield | Lending | Vault |
|---|
| CVaR 90 | 0.72x | Sr/Jr pair, highest Sr yield | 10% haircut | |
| CVaR 95 | 1.00x | Sr/Jr pair, standard | 15% haircut | |
| CVaR 99 | 1.18x | Sr/Jr pair, lowest Sr yield, highest Jr yield | 25% haircut | |
| CVaR 99.7 | 1.42x | | | Buyer of last resort |
The system is composable. Yield tranches provide structured exposure. Lending pools enable leverage against RWA collateral. The vault backstops liquidations. All three products read from the same CVaR computation, so risk is priced consistently across the stack.
For a detailed walkthrough of how RAVA computes the base discount for a specific asset (proxy baskets, historical CVaR, onchain liquidity signals, and the dynamic formula), see the mF-ONE underwriting case study.