> ## 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.

# How Vault Lending Works

> Understand how LP capital flows, what you earn from, and what risks you take.

Ultramarkets LPs don't take the opposite side of trader bets. You're a **lender**, not a counterparty.

When you deposit USDC into the vault, your capital gets lent to traders who want leveraged exposure to prediction markets. They post margin, borrow from the vault, and we execute their positions directly on Polymarket. You earn yield from their trading activity without taking directional risk on event outcomes.

## The Flow

<Steps>
  <Step title="Deposit">
    You deposit USDC into the vault and receive umUSD tokens
  </Step>

  <Step title="Lending">
    Traders borrow from the vault to open leveraged positions
  </Step>

  <Step title="Execution">
    We execute their trades on Polymarket using borrowed capital
  </Step>

  <Step title="Fee Collection">
    Traders pay fees and share profits when they win
  </Step>

  <Step title="Value Accrual">
    Fees and profit share flow back to the vault, increasing umUSD value
  </Step>

  <Step title="Withdraw">
    You withdraw anytime there's available liquidity
  </Step>
</Steps>

```mermaid theme={null}
flowchart TB
    LP[LP]
    Vault[Vault]
    Trader[Trader]
    PM[Polymarket]
    
    LP -->|Deposit USDC| Vault
    Vault -->|Mint umUSD| LP
    Trader -->|Margin| Vault
    Vault -->|Lend capital| Trader
    Trader -->|Execute| PM
    Trader -->|Trading Fee| Vault
    Trader -->|Profit Share| Vault
    LP -->|Withdraw| Vault
    Vault -->|USDC + yield| LP
```

## What You're Actually Earning From

<CardGroup cols={3}>
  <Card title="Trading Fees" icon="receipt">
    **0.5–1.5% of margin.** Every position opened pays a fee. Market orders pay 0.5%, limit orders pay 1.5%. A trader depositing \$1,000 margin on a market order pays \$5 to the vault. This accrues whether the trader wins or loses.
  </Card>

  <Card title="Profit Sharing" icon="hand-holding-dollar">
    **10% of trader profits.** When traders close profitable positions, 10% of their profit flows to the vault. If a trader makes \$5,000 profit, \$500 goes to LPs.
  </Card>

  <Card title="Liquidation Recovery" icon="shield">
    **Remaining margin.** When positions get liquidated, the vault recovers its loaned capital plus any remaining margin after covering losses.
  </Card>
</CardGroup>

## What You're NOT Exposed To

You have **zero directional exposure** to prediction market outcomes. Whether Trump wins, Bitcoin hits \$100k, or the Chiefs win the Super Bowl doesn't affect your returns.

<Note>
  Your exposure is limited to operational risks, not market outcomes.
</Note>

### Your Actual Risk Exposures

| Risk Type               | Description                                             |
| :---------------------- | :------------------------------------------------------ |
| **Credit risk**         | Can we liquidate positions before losses exceed margin? |
| **Execution risk**      | Can we close positions cleanly on Polymarket?           |
| **Smart contract risk** | Are the contracts secure?                               |

Our entire risk management system exists to minimize these risks.