Vault
Extended Vault Shares (XVS)
Whenever users deposit USDC into the vault, they receive Extended Vault Shares (XVS) in return. XVS:
Contributes 75%* of its value to both user Equity and Available Balance for Trading, allowing vault deposits to function as yield-bearing collateral for perpetual trading. * Currently, XVS contributes 75% to Equity and 50% to Available Balance for Trading. During the week of December 15, the contribution to Available Balance for Trading will be increased to 75%.
Continuously accrues both base and extra yield, as described in detail below.
Example: Impact of XVS Balance on User Equity and Available Balance for Trading
The user has 1,000 USDC in the account
$1,000
$1,000
The user deposits into the vault and receives $1,000 worth of XVS
$750
$750
The user opens a $1,000 BTC long with 4x leverage
$750
$500 ($750 - $1,000 / 4)
Unrealised PnL of BTC long becomes +$100
$850
$600
Note:
If you use XVS as collateral, it may be affected by trading losses and liquidation. If you want your vault deposit to remain independent of trading activity, please keep XVS in a separate sub-account. At the moment of deposit, you can choose the target sub-account where the XVS balance will be credited.
Currently, XVS balances can be transferred between sub-accounts but cannot be withdrawn from the exchange. We are considering enabling withdrawals in the future to support new DeFi primitives.
Vault Deposits & Withdrawals
Deposit Logic:
The minimum deposit is $5.
A 24-hour lockup period applies to each deposit. Withdrawals can only be made 24 hours after each deposit. If a user makes multiple deposits, each one follows its own lockup timeline.
Withdrawal Logic:
No minimum withdrawal amount.
Upon XVS withdrawal, the vault closes a pro-rata share of its open positions based on the user’s share of total vault equity and transfers the resulting USDC to the user’s account.
Any price impact from closing positions is borne solely by the withdrawing user and is not shared with other vault participants.
XVS yield
The Extended Vault quotes across all Extended markets, performs liquidations, and accrues exchange fees. These activities generate two types of yield:
Base Yield: Earned by all users and generated through the vault’s trading and liquidation activity.
Extra Yield: Earned based on user activity and derived from a share of exchange fees.
Base Yield
Base XVS yield is available to all vault depositors, with the logic of the yield-generating activities described below.
Trading
The vault actively quotes on all markets listed on Extended using an automated market-making strategy. Its quoting behavior is governed by both global and market-specific exposure controls, as well as dynamic capital allocation and spread management logic:
Exposure Management
Global Exposure Cap: If the vault’s leverage exceeds 0.2x, it will only quote in markets where it already holds exposure, and only on the side that reduces that exposure. This acts as a circuit breaker to prevent excessive leverage.
Per-Market Exposure Limits: Each market has a hard cap on allowable vault exposure. Less liquid assets have stricter limits to minimize risk from illiquidity.
Quoting Behavior
Adaptive Spread Quoting: Spreads are set dynamically—tightening in stable conditions and widening with volatility—to mitigate adverse selection. Quotes must remain within predefined width constraints to stay eligible for rewards.
Exposure-Aware Adjustments: The vault adjusts size and spread asymmetrically by side, reducing quoting size and widening the spread on the side that would further increase the vault's exposure.
Additionally, the vault accrues maker rebates from its market-making activity.
Liquidations
The vault handles all liquidations on the exchange, including liquidations of XVS balances and perpetual positions, and earns a 1% liquidation fee on healthy liquidations. It is important to note that, given the design of the XVS liquidation flow described below, the vault always earns a 1% fee on liquidations of XVS balances.
Potential losses to the vault from liquidations of perpetual positions, when a position is closed below the bankruptcy price and the vault covers the shortfall, are limited by three controls:
Global Limit: The vault cannot be depleted by more than 15% in a single day for liquidation purposes.
Per-Market Daily Budget: Each market can only utilize a fraction of the vault’s balance within a 24-hour period. This limit varies by market, with less liquid assets having access to a smaller share of the vault.
Per-Liquidation Loss Cap: Each market has a hard cap on the maximum absorbable loss per liquidation. Again, less liquid markets have more conservative caps.
If a liquidation breaches either of these limits, the position is automatically ADLed. You can check the market-specific loss caps here.
Given that the vault is designed to operate with low leverage (see Quoting Logic above), it is highly unlikely to become a counterparty to ADL. Therefore, the vault is not intended to serve as a last-resort backstop for failed liquidations.
Extra Yield (to be launched on the week of December 15)
Extra XVS Yield depends on user activity as per the logic below:
All users starting from the Knight trading league earn extra yield on their XVS balance.
The higher the user’s trading league, the higher the extra yield. The increase in extra yield accelerates from lower to higher leagues.
There is currently a $300k per-client vault deposit cap on which extra yield is paid across all leagues.
Unlike Base yield, Extra yield is paid in XVS once per day (meaning the user’s XVS balance will increase daily), and the additional XVS is accrued into the user’s main account. Extra yield is funded from a share of the fees generated by the exchange. In the longer run, extra yield will also accrue a share of the interest income generated by the integrated lending market.
Mechanics of the XVS Liquidation Process
Given that XVS represents a claim on vault equity, which includes open positions, the liquidation process for XVS differs from regular liquidations. The logic works as follows:
When a user with an XVS balance becomes subject to liquidation, their XVS balance is liquidated first, meaning it is withdrawn from the vault with a 1% liquidation fee that is accrued to the vault.
When liquidating vault shares, the vault closes its open positions in proportion to the liquidated XVS.
If the vault cannot close its positions via the order book (for example, due to insufficient liquidity), a special operation called Force Close is used.
The vault closes positions against the most profitable and highly leveraged user on the opposite side (as determined by the ADL ranking) at the Mark Price.
Force Close is similar to ADL, but unlike ADL, where positions are closed at the bankruptcy price, Force Close operates at Mark Price and does not impose direct losses on the opposing user.
Given the vault’s risk limits (the maximum position it can take in any market), Force Close is expected to be used only in extreme scenarios.
Because of this design, the XVS balance of a liquidated user can always be withdrawn from the vault.
After the XVS balance is withdrawn, if the user remains unhealthy, the system proceeds with the regular liquidation process for the user’s remaining perpetual positions.
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