Core Protocol Layer

The Core Protocol Layer is the deterministic execution engine of PRISM. It owns the vault accounting model, tranche state, NAV calculation, yield waterfall, and default resolution.

Vault

A vault represents a single credit pool containing multiple risk tranches.

Each vault tracks:

• USDC reserve.
• Tranche configuration.
• Total assets across tranches.
• Credit event history.
• Permission and pause state.

A vault is not a generic pool. It is a structured credit container with explicit rules for who gets paid first and who absorbs losses first.

Tranches

Each vault is partitioned into three tranches:

Tranche	Description	Waterfall Position	Loss Position
Prime	Loss-protected exposure (junior tranches absorb first)	Paid first	Absorbs last
Core	Intermediate risk exposure	Paid second	Absorbs second
Alpha	Residual upside exposure (first-loss capital)	Paid last	Absorbs first

Each tranche maintains:

• total_assets
• total_supply
• NAV per share
• target yield parameters, where applicable
• token mint relationship

NAV Per Share

NAV is the intrinsic accounting value of one tranche token.

NAV = total_assets / total_supply

Deposits mint shares based on current NAV. Withdrawals burn shares and redeem USDC based on current NAV. Yield increases tranche assets. Loss decreases tranche assets.

Waterfall Distribution

Incoming yield is allocated in priority order:

1. Prime tranche.
2. Core tranche.
3. Alpha tranche.

Prime and Core target rates define how much yield those tranches are entitled to before residual yield reaches Alpha. Alpha receives the remaining upside after higher-priority claims are satisfied.

Default Resolution

Losses are applied in reverse priority:

1. Alpha absorbs losses first.
2. Core absorbs residual losses.
3. Prime absorbs losses only after subordinate tranches are depleted.

This makes subordination explicit. Prime protection is not magic; it exists because junior capital is placed below Prime in the loss stack.

Reserve Invariant

The core accounting invariant is:

vault_usdc_reserve = prime_assets + core_assets + alpha_assets

When yield enters, both the reserve and tranche assets increase. When a loss is realized, USDC leaves the vault and tranche assets decrease through the cascade.