🎁Vault
Overview
In the TermMax protocol, a Vault is a smart contract that enables third-party fund management and profit sharing. Vaults are managed by Curators - specialized entities who deploy capital strategically across different markets to generate returns for liquidity providers who deposit assets into the vault.
Vault Functionality
Purpose and Capabilities
A Vault in TermMax serves as a managed investment vehicle that:
Deposits Capital: Aggregates funds from multiple depositors
Deploys Strategy: Places range orders across different markets based on curator expertise
Shares Returns: Distributes profits to liquidity providers proportionally to their contributions
Implements ERC-4626: Follows the tokenized vault standard for interoperability
Vaults can connect to multiple markets as long as they use the same debt token, allowing for diversified strategies across different markets and risk profiles.
Technical Implementation
Vaults in the TermMax protocol feature:
ERC-4626 Compliance: Standardized interface for deposit, withdrawal and share accounting
Order Management: Capability to create and manage orders across multiple markets
Queuing System: Priority-based deposit and withdrawal queues for optimal capital allocation
Role-Based Access: Separate permissions for different operational aspects
Timelock Protection: Enforced waiting periods for sensitive parameter changes
Vault Limitations
Vaults in TermMax have certain restrictions:
Can only be associated with Lending Range Orders and Two-Way Range Orders
Cannot create Borrowing Range Orders (these can only be created by individual range order setters)
In Two-Way Range Orders, curators can only lend first and then borrow by selling FT tokens; they cannot collateralize tokens to borrow directly
Are subject to capacity limits to prevent over-concentration of capital
Must respect timelock periods for parameter changes
Vault Governance Structure
Role Definitions
Curator: Primary manager with order creation and parameter setting authority
Guardian: Safety oversight role that can block pending changes during timelock periods
Allocator: Manages capital allocation through queue prioritization
Access Control Structure
The access control for vault-specific roles follows these principles:
The vault owner always has access to all roles
The Curator also has Allocator privileges
Multiple addresses can be assigned as Allocators
Each role has specific permissions that cannot be accessed by other roles
Role verification occurs before any restricted function execution
Timelock Protection Mechanism
Many operations initiated by the Curator undergo a timelock period before they can be applied. The timelock system follows a three-step process:
Submit - A change is proposed (typically by the Curator)
Wait - The change enters a timelock period (default: 1 day)
Accept - After timelock expiration, the change can be accepted
During the timelock period, the Guardian role has the ability to review and potentially revoke the pending change.
Asymmetric Timelock Design
TermMax employs an innovative asymmetric timelock design, where:
Risk-Reducing Changes - Applied immediately without timelock:
Increasing timelock duration
Decreasing performance fee rate
Removing market whitelisting
Risk-Increasing Changes - Require full timelock period:
Decreasing timelock duration
Increasing performance fee rate
Adding market whitelist
Changing guardian
This allows for quick response to reduce risk while maintaining careful review for changes that increase risk.
Vault Operational Flow
Vault Creation
The vault is deployed with initial parameters (asset token, name, timelock duration)
A curator is assigned to manage the vault
A guardian is assigned to provide security oversight
Liquidity providers deposit the vault's asset token (e.g., USDC)
They receive vault shares (ERC-4626 tokens) representing their proportional ownership
The curator deploys the capital through range orders based on their strategy
Creating Orders
The curator identifies a favorable market opportunity
They create a range order with specific pricing curve parameters
The order is funded from the vault's capital
As the order is filled, the vault earns fees and spread
Withdrawing from a Vault
Liquidity providers redeem their vault shares
The vault processes withdrawals based on the withdrawal queue priority
The curator may need to adjust orders or redeem positions to fulfill large withdrawals
Liquidity providers receive their principal plus any earned profits
Performance Fee Distribution
The curator earns performance fees based on profits generated
Performance fees are calculated as a percentage of returns (set by the curator with timelock protection)
The curator can withdraw earned performance fees via a designated function
Key Vault Parameters
Vault Configuration
Asset Token: The ERC-20 token that liquidity providers deposit (e.g., USDC)
Capacity: Maximum total value locked (TVL) in the vault
Performance Fee Rate: Percentage of profits allocated to the curator
Timelock Duration: Waiting period for sensitive parameter changes (1-30 days)
Order Configuration
When curators create orders, they specify:
Market: The whitelisted market to interact with
Maximum Supply: Total order size limit
Initial Reserve: Initial amount allocated to the order
Curve Cuts: Pricing curve configuration determining rates offered
Order Type: Lending or Two-Way order
Best Practices for Curators
Risk Management
Maintain diversification across multiple markets to reduce concentration risk
Set conservative LTV ratios when creating orders
Monitor market conditions regularly to adjust strategies
Maintain sufficient reserves for withdrawal requests
Parameter Setting
Set realistic performance fee rates (typically 10-20%)
Implement appropriate timelock durations based on strategy volatility
Gradually adjust parameters to avoid market disruption
Consider liquidity provider interests when configuring orders
Market Selection
Thoroughly evaluate market risk before whitelisting
Consider correlation between markets in the portfolio
Monitor market activity after whitelisting
Revoke whitelist if risks emerge
Operational Excellence
Maintain clear communication with liquidity providers
Document strategy changes and performance
Regularly review order performance and adjust as needed
Plan for contingencies in case of market disruption
Two-Way Range Order Borrowing Limitation
In Two-Way Range Orders created by vault curators, the borrowing mechanism has a specific restriction:
Initial Lending Only: The vault must first act as a lender by providing debt tokens to the market.
Borrowing Through FT Sales: The vault can only borrow by selling FT tokens it has acquired through its lending activities.
No Direct Collateralization: Unlike individual range order setters, vaults cannot directly collateralize tokens to borrow. This restriction exists because the vault itself holds user deposits, making direct collateralization complex from a risk management perspective.
This design choice ensures that vault borrowing is always backed by lending activities first, providing an added layer of security for vault depositors and maintaining a clear capital flow within the vault ecosystem.
Summary
Vaults and Curators form the backbone of third-party fund management in the TermMax protocol. Curators leverage their expertise to manage capital efficiently across markets, while the carefully designed governance structure ensures security through timelock protection and role separation. The ERC-4626 standard provides liquidity providers with a familiar and interoperable way to participate in TermMax strategies, while earning returns proportional to their investment.
The system balances curator flexibility with appropriate constraints to protect liquidity providers, creating a sustainable ecosystem for managed fixed-rate lending and borrowing positions.
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