Methodology
RoycoPharos rates Dawn yield tranches risk-first. It models each tranche in three layers, then leads with two independent numbers: a Safety score for capital downside and an Opportunity score for risk-adjusted yield.
Every tranche carries two Royco scores. Read them as a pair. The Safety score answers how protected the tranche seat is after base-asset, exposure, and tranche-structure risk. The Opportunity scoreanswers whether the yield pays fairly for that risk. Pharos' own letter grade stays attached to the base asset only.
The gap between the two numbers is the signal. A Junior with low Safety but high Opportunity is telling you the yield may be paying for real first-loss risk. The sections below build up each score from the data, with a visual model for every step.
The two scores
Royco Safety Score measures tranche capital risk. It uses the Pharos base Safety Score as Layer 1, subtracts a bounded curated exposure haircut in Layer 2, then applies Layer 3 tranche mechanics: Senior cushion credit and bounded structure penalties. Pharos rates the base asset; this Royco view rates the seat.
clamp(round(pharosBaseScore - exposureHaircut + seniorCushionCredit - trancheStructureHaircut), 0, 100)
Royco Opportunity Score measures reward per unit of risk. It haircuts APY by the safety fraction, then normalizes the result to 0..100. A high-yield Junior can earn a strong Opportunity score while its Safety score honestly stays low. It is a transparent heuristic, not a Sharpe ratio.
clamp(round((APY x (Safety / 100) ^ gamma) / 12% * 100), 0, 100)
Each score as a flow from inputs to a Royco number
Score bands
These bands are the color system behind the numeric badges. A Safety score is calibrated 0 to 100. Opportunity starts from risk-adjusted net yield and is normalized to 0 to 100 for display, while the yield bands remain available for calibration and API compatibility.
The three-layer model
Each tranche is built from three layers. Layer 1 is the vault input and its Pharos score. Layer 2 is the exposure: the strategy, the yield source, services and protocols used, and what breaks them. Layer 3 is the tranche structure: your seat in the waterfall, the buffer beneath you, and utilization.
- Layer 1 Base asset: Pharos Safety Score and grade are shown verbatim.
- Layer 2 Exposure: curated service/protocol score, converted to a bounded haircut with a 16-point cap.
- Layer 3 Tranche structure: neutral score 70, plus Senior cushion credit, minus bounded structure haircut.
The Pharos score is not a ceiling. A well-buffered Senior can score above the whole vault because Junior capital absorbs losses first. A Junior can score below the vault because it is the first-loss seat.
Vertical cross-section, vault input to tranche seat
Pharos is the vault input. RoycoPharos then grades each tranche seat independently.
How Senior and Junior differ
Senior tranche: junior-buffered exposure. Senior can still lose value if losses exceed the Junior buffer, market mechanics fail, data is stale, or the underlying asset deteriorates.
Junior tranche: first-loss exposure. The first-loss term is buffer-scaled, so the thinner the buffer beneath it, the heavier the term, and utilization bites earlier and harder. Junior's compensation for first loss is its yield, which is rewarded in the Opportunity score, not double-penalized in Safety.
Worked example: which seat absorbs losses first
Tranche-structure factors
The haircut is built from these factors. The total is bounded by a per-side cap and combined with diminishing returns, so penalties saturate rather than stack linearly.
- Market status: normal, Protection mode, unhealthy, or critical.
- Junior first-loss, buffer-scaled: the thinner the buffer beneath, the heavier the term.
- Utilization: saturating pressure against the limit; Junior feels it earlier and harder.
- Coverage: current Junior buffer vs required buffer.
- Tranche TVL: below $100k, $250k, or $1M adds liquidity-friction terms.
- Venue tier, drawdown, access friction, withdrawal friction, Junior redemption delay.
Structure weights
These weights are rendered directly from the scoring constants the engine uses, so this table cannot drift from the computed scores. Utilization and the Junior first-loss term are curve-based and shown as ranges.
| Factor | Senior | Junior |
|---|---|---|
| Status: Protection mode | 5 | 8 |
| Status: unhealthy | 9 | 14 |
| Status: critical | 13 | 18 |
| Senior cushion credit (coverage-scaled) | 0–32 | 0 |
| Junior first-loss (buffer-scaled) | 0 | 8–16 |
| Utilization pressure (saturating) | 0–7 | 0–14 |
| Coverage below required (base) | 8 | 6 |
| Tranche TVL < $100k | 5 | 7 |
| Venue tier: high | 5 | 6 |
| Withdrawal underlying-dependent | 1 | 2 |
| Access restricted / KYC | 2 | 3 |
| Junior redemption delay | 0 | 3 |
| Per-side haircut cap | 14 | 28 |
Penalty taxonomy
Every factor belongs to one of four risk categories and carries a severity tier. Severity orders the factors from a quiet note to a critical deduction, and it is the color you see on a tranche's breakdown.
- Junior first-loss
- Market status
- Coverage below required
- Drawdown
- Utilization pressure
- Tranche TVL below thresholds
- Junior redemption delay
- Missing status or coverage
- Missing tranche TVL
- Stale snapshot
- Venue tier
- Withdrawal underlying-dependent
- Access restricted or KYC
Band tables
A given score maps to the same internal band every snapshot. These bands drive color and compatibility fields; the product-facing Royco outputs are the numeric scores.
Safety bands
| Grade | Score ≥ |
|---|---|
| A | 70 |
| B | 55 |
| C | 40 |
| D | 25 |
| E | 10 |
| F | 0 |
Opportunity bands (net yield %)
| Grade | Net yield ≥ |
|---|---|
| A | 12% |
| B | 8% |
| C | 5% |
| D | 3% |
| E | 1.5% |
| F | 0% |
Missing data, freshness, and limitations
Missing market status, coverage, utilization, tranche TVL, APY observations, or reviewed venue/exposure data adds an uncertainty term and sets the row to low confidence. Observed zero APY is computed as zero-yield, not treated as missing. Missing Pharos vault Safety Score, or an invalid tranche side, produces NR rather than a silent F.
RoycoPharos is informational only and is not financial, investment, legal, tax, or credit-rating advice. It does not guarantee principal, APY, liquidity, tranche coverage, redemption, source accuracy, or future market behavior. Access/KYC indicators are not legal determinations. Data may be delayed, incomplete, or wrong.