Liquidity vaults
Collateral vaults are the insurance layer of the eToken system and the funding source of its lending market. LPs deposit crypto, receive ERC-4626 shares, and earn yield for carrying first-loss risk on the unreserved residual.
Structure
| Property | Detail |
|---|---|
| One vault per collateral type | USDG (held as oUSDG through the lending pool) at launch; design supports aUSDC, ETH, stETH-style collaterals |
| Shares | ERC-4626; share price rises as the vault earns |
| Operator | A Vault Manager (typically a market-making firm) runs each vault: accepts deposits, runs the lending book, distributes earnings |
| Deposits | Async request/accept queue |
| Withdrawals | Async queue (ERC-7540 pattern) with a 72-hour wait, fulfillable when utilization allows |
What LP collateral does
- Insures eToken issuance. Net exposure (issuance not yet covered by reserves) must stay at or below the global utilization cap of counted collateral; see Backing & solvency.
- Underwrites the lending book. Borrowers of USDG against eToken collateral draw on a credit line the vault backs; see Borrowing.
- Funds force-executed exits. Tier four of the exit waterfall settles against an approved vault at the oracle price.
Where LP yield comes from
| Source | Mechanism |
|---|---|
| Native yield | Yield-bearing collateral (aTokens, staked ETH) appreciates inside the vault |
| Lending premium | The borrow-rate premium flows to the Vault Manager and on to LPs via share-price growth, minus a treasury cut (10% at current settings) |
| Flow share | Vault managers share maker economics with the vaults they run |
Yield accrues as share-price appreciation: no claiming, no lock on the shares themselves (the withdrawal queue applies to exiting the vault).
The risk LPs take
LP collateral is explicitly first-loss against the unreserved residual: a wrapper depeg, an issuer failure, a maker default before backfill, or force-executed redemptions. The compensation model prices this: LP yield targets roughly twice the collateral's own native benchmark. Concentration caps and the utilization cap bound how much residual any collateral pool can be asked to cover.