Key Terms

Key Terms

VT/Vault

Vault token attached and exposed to multiple instruments.

Instruments

We characterize Instruments as any ground for a specific kind of financial transaction between two parties; those who demand(utilize) liquidity and those who supply(invest) liquidity. Demanders require capital and put it to work and thereby pay the suppliers with returns(in the form of yield).

Some examples:

a) In the case of a loan, the borrower demands liquidity by being willing to pay the price of capital to lenders(suppliers).

b) In the case of insurance, the insurance seller supplies capital to insurance buyers(demanders), who pay the sellers the price of capital.

c) In the case of market making, an efficient market demands liquidity to be almost always available to takers, and by doing so rewards the market makers(suppliers) a certain amount of spread and fees.

An Instrument could take the form of, but is not limited to, cash flow generating assets such as unsecured/collateralized loans and volatility selling positions or a contract that simply buys and hold financial assets. For example, an Instrument could be a creditline contract. The principal would be supplied from VT, and borrowers would interact with this contract to borrow and repay the principal. After the loan matures, repaid capital and interest would be directed back to VT. More examples can be found in the Instrument Examples section.

An Instrument contract could be arbitrarily complex. All the system requires is it to inherit from the protocol's base implementation.

longZCB

Token that accrues junior tranche returns of the underlying Instrument.These are concentrated and levered bets on a single Instrument, while VT is a passive and senior investment in a pool of instruments. See diagram here. They are programmed such that the purchaser’s collateral would be used as first loss capital. Given a counterparty(shortZCB buyers), its open interest can scale arbitrarily(total amount of minted longZCB).

shortZCB

a tokenized borrow+sell position of longZCB. Pays off positively when the instrument fails to be profitable.

Reputation

A proxy of a manager’s risk assessment capability. Updated at the completion of each instrument’s cycle.