> ## Documentation Index
> Fetch the complete documentation index at: https://docs.ultramarkets.xyz/llms.txt
> Use this file to discover all available pages before exploring further.

# Economics & Returns

> Understand revenue sources, expected returns, and capital efficiency.

## Revenue Sources

The vault generates yield through three mechanisms:

| Source                   | Rate                  | When It Accrues            |
| :----------------------- | :-------------------- | :------------------------- |
| **Trading fees**         | 0.5–1.5% 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              | \$210K (0.5% of volume)                       |
| Profit sharing            | \$200K (assuming 50% win rate, avg 10% gains) |
| **Monthly vault revenue** | **\$620K**                                    |
| **Annualized yield**      | **\~74% APY**                                 |

<Info>
  Actual yields will vary based on trading volume, utilization rates, and market conditions.
</Info>

## 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

<Steps>
  <Step title="Position Opened">
    Trader borrows \$90K on \$10K margin (10x)
  </Step>

  <Step title="Rapid Price Movement">
    Position drops faster than liquidation can execute
  </Step>

  <Step title="Partial Recovery">
    We recover \$85K instead of \$90K
  </Step>

  <Step title="Bad Debt Created">
    Bad debt: \$5K
  </Step>
</Steps>

**Resolution:**

* If USM has capacity → it absorbs the \$5K (umUSD unaffected)
* If USM is depleted → \$5K loss spreads across all umUSD holders

<Note>
  With proper risk management, bad debt events should be rare and small relative to vault size.
</Note>

## Capital Efficiency

The vault model is highly capital-efficient:

<CardGroup cols={3}>
  <Card title="10x Leverage" icon="bolt">
    Every \$1 of LP capital enables up to \$10 of trading volume
  </Card>

  <Card title="Auto-Compound" icon="rotate">
    Fees compound automatically through NAV appreciation
  </Card>

  <Card title="Full Deployment" icon="rocket">
    No idle capital sitting in contracts. Everything works.
  </Card>
</CardGroup>

<Info>
  This efficiency is what allows sustainable high yields without relying on token emissions or unsustainable incentives.
</Info>