Liquidity Efficiency

Under this system, active participation from the managers will allow all lending pools connected to a vault to reach an equilibrium state with similar risk-adjusted returns, which mitigates inefficiencies associated with liquidity fragmentation.

If one lending pool has a higher utilization rate compared to its risk(high apr vs risk of collateral), managers will redeem(withdraw capital) from another lending pool with a lower risk-adjusted return(either low utilization rate or more risky collateral) and supply to the higher pool. This allows the lending pools to have a completely isolated structure(one collateral per token to be borrowed) without sacrificing much efficiency.

Managers are incentivized to constantly rebalance the pools to maximize their profit, which will also direct capital to instruments that need it most.