Core Mechanism

Strategy Vault Mechanism

A Strategy Vault is a program-controlled capital pool that allows strategy manager to deploy strategies, participate via shares, and power downstream lending markets. Each vault operates independently with its own risk parameters, accounting, and yield distribution.

Vault Creation & Risk Parameters

Each Strategy Vault is created permissionlessly through the Vault Factory.

During creation, the vault creator must specify:

• Maximum Drawdown A fixed drawdown threshold (e.g. 10%, 15%, 20%) that defines the maximum allowable loss from the vault’s peak equity.

This parameter is immutable once set.

If the vault’s drawdown exceeds this threshold:

• All active positions are force-closed

• Assets are converted back to a base asset

• The vault enters a recovery state

• Strategy execution is halted

This ensures that downside risk is bounded and enforced by code.

Share-Based Capital Accounting

All capital deposited into a Strategy Vault is tracked using shares, not balances.

• Strategy LPs deposit capital into the vault

• In return, they receive vault shares

• Shares represent proportional ownership of the vault’s total equity

Vault equity fluctuates based on strategy performance:

• Profits increase the value of each share

• Losses decrease the value of each share

Strategy LPs fully participate in both upside and drawdown through share ownership.

Fee Structure (2 and 20)

Each Strategy Vault enforces a standard 2 and 20 fee model, implemented through share-based accounting.

Management Fee (2%)

• A 2% annual management fee is applied continuously

• Fees are collected by minting new vault shares to the strategy creator

• No assets are removed from the vault

This ensures that vault liquidity remains intact while compensating strategy operators over time.

Profit Allocation Mechanism

When a Strategy Vault generates profit, net profits are allocated according to a fixed rule:

• 70% of profits are retained within the Strategy Vault This portion compounds as strategy capital, increasing future earning potential.

• 30% of profits are routed to the vault’s associated lending market This portion is used to fund lender yield (APY).

This allocation ensures that:

• Strategies can compound over time

• Lending markets are powered by real performance, not interest extraction