> For the complete documentation index, see [llms.txt](https://docs.extended.exchange/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.extended.exchange/extended-resources/vault.md). # Vault ### Important Risk Disclosure Allocating assets to the Extended Vault involves substantial risk and may result in the partial or total loss of your allocation. The Extended Vault is intended only for users who fully understand and are willing to bear these risks. By allocating assets to the Extended Vault, you acknowledge and accept that: * Your assets will be actively deployed in liquidation processing and other protocol activities, as described below, and will not remain idle. * The value of your allocation may increase or decrease at any time. * Returns are variable, are not guaranteed and may be negative. * You may lose part or all of your allocation. * Past performance is not indicative of future results. The Extended Vault is exposed to a variety of risks, including liquidation processing risk, lending and money market risk, XVS collateral and liquidation risk, withdrawal and liquidity risk, vault performance risk, operational risk, technology risk, smart contract risk, oracle risk and risks arising from extreme market conditions. A detailed description of these risks, together with the operation of the Extended Vault and its risk-management framework, is set out [below](#detailed-vault-risk-disclosure). Users should carefully review and understand these disclosures before allocating assets to the Extended Vault. ### Extended Vault Shares (XVS) Whenever users deposit USDC into the vault, they receive Extended Vault Shares (XVS) in return. XVS: * Contributes 90% of its value to both user Equity and Available Balance for Trading, allowing vault deposits to function as yield-bearing collateral for perpetual trading. * 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** | Scenario | User Equity | User Available Balance | | ----------------------------------------------------------------- | ----------- | ------------------------ | | 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 | $900 | $900 | | The user opens a $1,000 BTC long with 4x leverage | $900 | $650 ($900 - $1,000 / 4) | | Unrealised PnL of BTC long becomes +$100 | $1000 | $750 | **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. * If you have a negative USDC balance that is offset by your XVS balance, no interest is charged on the negative USDC balance. ### 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 any 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. * During the liquidation of spot balances (see step 5 of the [liquidation process](/extended-resources/trading/liquidation-logic.md)), the vault may temporarily hold assets other than USDC. As a result, **when XVS is withdrawn, the user may receive a mix of assets (not only USDC), in proportion to their share of total vault equity**. This is expected to be a rare but plausible scenario. ### XVS yield The Extended Vault currently generates yield through liquidation activity, lending activity within Extended's native money market and a share of exchange fees. These activities generate two types of yield: * **Base Yield:** Earned by all users and generated through the vault’s 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 and accrues continuously through changes in the XVS price. The activities that generate this yield are described below. **Trading (deprecated)** The trading functionality described in this section has been discontinued. The Extended Vault currently does not engage in any market-making, quoting, proprietary trading or similar trading activities. This section is retained solely for transparency and historical reference. Historically, the vault actively quoted on markets listed on Extended using an automated market-making strategy. Its quoting behavior was 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 0.1x, 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 accrued maker rebates from its historical market-making activity. **Liquidations** The vault handles all liquidations on the exchange, including XVS, spot 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 5% 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. You can check the market-specific loss caps [here](/extended-resources/trading/liquidation-logic.md). All liquidations are deterministic, and the vault knows its PnL for every liquidation trade, as it closes the liquidated position before taking it over. If the vault cannot close a position at an acceptable price within the risk limits described above, it does not take over the position, and the position is instead auto-deleveraged (ADL). 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 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 by interest income from the native [money market](/extended-resources/money-market.md) and a share of exchange fees. #### 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 (if any) 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](/extended-resources/trading/liquidation-logic.md#auto-deleveraging-adl)) 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. It is important to note that, during the liquidation of spot balances (see step 5 of the [liquidation process](/extended-resources/trading/liquidation-logic.md)), the vault may temporarily hold assets other than USDC. Consequently, **when XVS is liquidated, the user may receive a mix of assets (not only USDC), in proportion to their share of total vault equity.** ### Detailed Vault Risk Disclosure Allocating assets to the Extended Vault involves substantial risk. The Extended Vault currently does not engage in market-making, quoting, proprietary trading or similar trading activities. The principal current risks arise from liquidation processing, lending activity within Extended's native money market, the use of XVS as collateral, withdrawal mechanics and the operation of the protocol. **1. Loss of Allocation** The value of XVS may increase or decrease over time. Users may lose part or all of their allocation. Returns are variable, are not guaranteed and may be negative. Neither historical performance nor historical yield should be relied upon as an indicator of future performance. Extended does not guarantee preservation of capital and does not compensate users for losses incurred through participation in the vault. **2. Liquidation Processing Risk** The vault participates in the liquidation process on Extended and may absorb losses where liquidated positions are closed below their bankruptcy price. Although the protocol implements global limits, per-market budgets and per-liquidation loss caps designed to reduce risk, these controls do not eliminate the possibility of losses. Periods of extreme volatility, rapid price movements, market dislocations, insufficient liquidity or failures in the liquidation process may result in losses to the vault. **3. Lending and Money Market Risk** The vault acts as the primary lender within Extended's native money market and earns interest from users borrowing USDC against eligible collateral assets. The value of the vault may be adversely affected if collateral values decline rapidly, collateral cannot be liquidated efficiently, liquidity becomes unavailable, or liquidation mechanisms fail to operate as intended. The money market relies on collateral valuation, interest-rate models, mark prices, liquidation systems and other protocol mechanisms. Failures, inaccuracies, delays or adverse market conditions affecting these mechanisms may result in losses to the vault. Interest income generated by the money market may vary significantly over time and may decrease or cease entirely. **4. XVS Collateral and User Liquidation Risk** XVS contributes 90% of its value to user Equity and Available Balance for Trading. Users who utilise XVS as collateral may experience reductions in their XVS balance as a result of trading losses, liquidation events or other account-level risk events. Where a user becomes subject to liquidation, the user's XVS balance is liquidated first and withdrawn from the vault in accordance with the liquidation process described above. A liquidation fee applies to such withdrawals. Users who wish to separate vault participation from trading activity should hold XVS in a dedicated sub-account. **5. Withdrawal and Liquidity Risk** Vault withdrawals are subject to a 24-hour lockup period for each deposit. When XVS is withdrawn, the vault may be required to unwind a proportional share of positions or assets held as part of its liquidation and money market activities. Any resulting slippage, execution costs or price impact are borne solely by the withdrawing user. In certain circumstances, including following spot balance liquidations, the vault may temporarily hold assets other than USDC. As a result, withdrawals may be settled partially in assets other than USDC. **6. Vault Performance Risk** XVS represents a claim on the equity of the Extended Vault. The value of XVS is determined by the value of the underlying vault equity and may increase or decrease over time. Vault equity may be affected by liquidation gains and losses, lending income, lending losses, fee income, force-close activity, operational incidents and other events affecting the vault. Accordingly, users are exposed to fluctuations in the value of XVS and may experience gains or losses through changes in vault equity. **7. Technology, Smart Contract, Oracle and Operational Risk** The vault relies on software, smart contracts, matching engine infrastructure, liquidation systems, interest-rate models, mark price calculations, oracle inputs and other operational infrastructure. Bugs, exploits, security incidents, incorrect calculations, oracle failures, network disruptions, infrastructure outages, human error or other technical or operational failures may result in losses, delayed withdrawals, incorrect valuations, unexpected liquidations or other adverse outcomes. **8. Protocol Parameter Risk** The operation of the vault depends on various protocol parameters, including collateral factors, liquidation limits, utilisation targets, interest-rate models, risk limits and fee allocation mechanisms. Incorrect configuration, unexpected interactions between parameters or future changes to protocol parameters may adversely affect vault performance, user returns or the value of XVS. **9. Extreme Market Conditions** Extreme volatility, liquidity shortages, market dislocations, cascading liquidations, blockchain congestion, oracle failures or other extraordinary market events may result in losses that exceed historical experience or internal risk assumptions. Risk controls and exposure limits are intended to reduce risk but should not be interpreted as guarantees against loss. **10. No Insurance or Compensation** Vault allocations are not deposits and are not protected by any governmental deposit insurance scheme, compensation scheme or guarantee fund. Neither Extended nor any affiliated party guarantees the performance of the vault, preservation of capital, availability of liquidity or any level of return. Losses arising from participation in the vault are not compensated. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. 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