1.1 Limitations of Traditional Tiered Financial Products

In traditional capital markets, tiered funds employ a “senior–subordinated” structure to stratify risk and returns, such as the distinction between conservative bank wealth products and aggressive trust products. However, such products face three major challenges:

• Centralized Operational Risks: Moral hazards (e.g., fund misallocation) and operational risks (e.g., lack of transparent valuation) persist. A 2018 asset management scandal involving a securities firm was caused by the absence of penetrative supervision of underlying assets.

• Liquidity Fragmentation: Senior and subordinated tranches are traded in different markets, disrupting arbitrage mechanisms. For instance, in 2020, the premium-discount rate of bond-tiered funds fluctuated over 15%.

• High Compliance Thresholds: Regulatory requirements exclude most retail investors. For example, the China Securities Regulatory Commission (CSRC) mandates a minimum investment of 1 million RMB in tiered funds, covering less than 0.5% of the population.