Overview

What are Vaults?

Vaults act as the backstop counterparty to traders when the Stability Fund is depleted. In exchange for providing this liquidity, vault depositors continuously receive distributions from the Stability Fund, which accumulates traders' losses plus 45% of protocol revenues.

Each vault is siloed by collateral asset. Your share in the MON vault operates independently from your share in the USDC vault.

How the Stability Fund Works

The Stability Fund acts as a capital buffer between traders and liquidity providers. All trading fees and trader losses flow into the Stability Fund first. The fund then distributes profits to vault depositors over an adjustable rolling period, smoothing volatility and protecting against sharp drawdowns.

When adequately capitalized, the Stability Fund enables vault depositors to earn stable returns without exposure to sudden swings in trader performance. This architecture prioritizes depositor safety by positioning vaults as the last line of counterparty exposure rather than the first.

Over time, accumulated fees and trading losses maintain the Stability Fund's capital, creating a self-reinforcing system that benefits all participants.

Risks

Vaults carry financial risk. Extended periods of profitable trading activity can deplete both the Stability Fund and your deposited capital, even if risk-management policies using tools described in risk mitigation are in use.

Additional risks include smart contract vulnerabilities and order mispricings, detailed in our risk disclosure.

Share Mechanics

Your vault share equals your vault balance divided by the total vault balance. New deposits from other liquidity providers dilute your share, while withdrawals increase it.

Technical Note

In the smart contracts, "pool" refers to the vaults, while "buffer" refers to the Stability Fund.