Revenue Sources
The vault generates yield through three mechanisms:| Source | Rate | When It Accrues |
|---|---|---|
| Trading fees | 1% of margin | Every position opened |
| Profit sharing | 10% of trader profits | Profitable position closes |
| Liquidation recovery | Remaining margin | Position liquidated |
Example Returns
Scenario: $10M vault, 70% average utilization, active trading| Metric | Value |
|---|---|
| Deployed capital | $7M at any time |
| Average position turnover | 5 days |
| Monthly volume | $42M ($7M × 6 turns) |
| Trading fees | $420K (1% of volume) |
| Profit sharing | $200K (assuming 50% win rate, avg 10% gains) |
| Monthly vault revenue | $620K |
| Annualized yield | ~74% APY |
Actual yields will vary based on trading volume, utilization rates, and market conditions.
When the Vault Loses Money
The only scenario where umUSD share price decreases: bad debt from failed liquidations. If a position loses more than its margin before we can liquidate, the vault absorbs the difference. This is why we’ve built multiple layers of protection, with the USM as the critical backstop.Example Bad Debt Scenario
1
Position Opened
Trader borrows $90K on $10K margin (10x)
2
Rapid Price Movement
Position drops faster than liquidation can execute
3
Partial Recovery
We recover $85K instead of $90K
4
Bad Debt Created
Bad debt: $5K
- If USM has capacity → it absorbs the $5K (umUSD unaffected)
- If USM is depleted → $5K loss spreads across all umUSD holders
With proper risk management, bad debt events should be rare and small relative to vault size.
Capital Efficiency
The vault model is highly capital-efficient:10x Leverage
Every $1 of LP capital enables up to $10 of trading volume
Auto-Compound
Fees compound automatically through NAV appreciation
Full Deployment
No idle capital sitting in contracts. Everything works.
This efficiency is what allows sustainable high yields without relying on token emissions or unsustainable incentives.