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About Vaults

Vaults are an onchain structure that allows less active lenders to participate in a curated set of lending rules set by a third-party and opted-into by the depositor.

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Architecture

Vaults are constructed from a set of program accounts that enforce accounting, staking, and risk controls on top of a Loopscale lending Strategy account:
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Strategy
Strategy: As outlined in the core Loopscale Docs, Strategy Accounts are the backbone of the Loopscale Credit Order Book. Strategies contain the core NAV logic for a lender’s position, maintained on each relevant loan action (deposit/withdrawal from strategy, borrow/repay loan), as well as interest rate and duration data.
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MarketInformation
MarketInformation: A market information account stores up to 250 asset mints, oracle information, LTVs, and LQTs (liquidation ratios). Each strategy is mapped to one market information. Market informations are created by Loopscale (for the public borrow page) or Vault Managers.
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VaultAccount
VaultAccount: Manages the lifecycle of a vault manager acts as a pooled wrapper on top of a Strategy. A third party controls all settings for a given strategy as well as governors for deposits/withdrawals for depositors to the Vault. It creates and manages the supply of the LP tokens representing shares in the Vault and redeemable for principal + interest based on the NAV of the underlying Strategy.

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Vault Depositor Lifecycle

Depositors to Loopscale Vaults follow a defined lifecycle governing deposits, staking, rewards, and withdrawals:
  1. Deposit: Users deposit the vault’s principal asset and receive LP tokens in return. Deposits mint LP supply, forward principal into the vault strategy, and trigger a NAV update atomically. As the specific exchange rate of an LP token for a deposit asset may change every block, depositor-specified slippage bounds are enforced before acceptance.
  2. Stake: The staking infrastructure (VaultStake) custodies LP position’s (automatic if using Loopscale API/UI). This both simplifies life for depositors (no accidental burns) and allows for them to opt-in automatically to all rewards and points offered to vault depositors.
  3. Reward Accrual: Active VaultRewardsSchedule accounts accrue emissions on a per-slot basis. Rewards are indexed against the weighted stake supply and distributed proportionally across staked positions. Because deposits are auto-staked, users begin accruing rewards immediately without any additional action.
  4. Unstake: LP Tokens can be unstaked and brought outside of Loopscale or unstaked in order to redeem for deposits.
  5. Withdrawal: Withdrawals burn LP tokens, return principal, and apply accrued rewards. The Loopscale UI automatically performs any necessary unstake operations under the hood before transferring assets to the user.

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Vault Risks

Even with strict collateral parameters and curator oversight, vaults remain exposed to borrower performance and market dynamics. These risks cannot be fully eliminated:
  • Borrower Default: A borrower may fail to repay, and if collateral liquidations do not cover the shortfall, the vault absorbs the loss.
  • Liquidation Risks: Liquidations depend on timely oracle updates, on-chain liquidity, and execution capacity. Delays from network congestion, stale oracles, or rapid moves can reduce recovery.
  • Contract Risks: Bugs or vulnerabilities in Loopscale smart contracts could impair vault operation.
  • Asset Risks: Supported assets may depeg, be hacked, or otherwise lose significant value unexpectedly.
  • Oracle Risk: Oracles are defined at loan origination and cannot be modified until rollover. An oracle malfunction can trigger errant or failed liquidations.
  • External Counterparty Risk (e.g. Marginfi): Idle vault liquidity can be allocated to external money markets to earn yield, but doing so introduces exposure to those protocols.
Idle yield allocation is optional. Curators can disable this feature and keep idle funds in vault reserves.

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Bad Debt Handling

Each Vault is isolated in terms of credit risk. If an individual loan ends up underwater (LTV > 100%):
  • Liquidator receives full collateral value at oracle spot price
  • The difference between loan principal and recovered value is deducted from the Strategy’s NAV
  • Losses are absorbed proportionally by depositors in that Vault via the updated NAV
This structure ensures no contagion between Vaults and maintains transparency over realized losses.
Loopscale has never incurred a bad debt event and has robust liquidation systems in place with partners to ensure swift liquidation.