# Summary

Ondo Finance offers decentralized structured products with multiple tranches with different levels of risk. These products allow crypto investors to trade the risk and reward balance of pooled assets. Existing yield in crypto markets is in the form of volatile rates derived from a complex source of inputs. Ondo's vaults significantly broadens the investor base that can capitalize on these yields by establishing fixed yield positions with reduced risk and comprehensible exposure, while simultaneously providing new forms of leveraged exposure to experienced crypto-asset investors.

In the initial implementation we restrict investors into two groups: fixed and variable yield positions. The fixed tranche position will receive a fixed percentage over its initial investment. The variable tranche will receive all excess returns after the fixed yield receives its payout.

Consider the trading pair on Uniswap of DAI/ETH. The fixed tranche depositor will provide one asset, while the variable tranche depositor will provide the other. Let's say the fixed yield depositor provides DAI and the variable yield depositor provides ETH. They will deposit their assets into the Vault contract. A strategist will set a hurdle rate for the fixed yield. In this example, let's say it is 10% annualized. The vault will remain open for deposits for a short period, then it will close and the strategist will invest the assets into the AMM's liquidity pool. After some duration (say 4 weeks), the strategist will redeem the LP tokens for both assets. The vault contract will then use those assets to first pay back the fixed yield depositors their original principal plus yield, while the variable yield depositors will get any excess returns.&#x20;

## Vault Characteristics

All Vaults must have four basic features:

1. **Duration**
   * Vaults will initially have fixed durations, but will soon be perpetual products
2. **Asset Pool**
   * The Asset Pool is what assets the Vault invests liquidity provider funds into, including any actions that should be done with those assets, such as staking or lending on-chain
3. **Number of Positions and Relative Size**
   * Vaults will initially each have two positions -- fixed and variable -- with each representing 50% of the Vault's entire asset value when the Vault is created
4. **Return Split**
   * Basis for distributing returns between the various positions
   * Initial Vaults will separate tranches according to nominal return hurdles with respect to some base asset (e.g., USDC), but tranches can be separated according to any programmable means. Other vaults may separate returns between tranches according to a ratio (e.g., where a junior tranche receives 3x the returns to a senior tranche), or source of income (e.g., one tranche may receive all returns from liquidity mining incentives)

## Vault Lifecycle&#x20;

The following steps describe the lifecycle of an Ondo Vault:

1. **Structuring**
   * Creator submits a vault structure on-chain, specifying the characteristics described above
2. **Subscription Requests**
   * Liquidity Providers deposit crypto-assets to make subscription requests in tranches
3. **Deployment**
   * At the end of the designated subscription window, assets from liquidity providers are invested into the Asset Pool specified by the Creator
4. **Redemption**
   * After expiration of the Vault, liquidity providers in the fixed yield tranche are paid out first their target rate of return from the crypto-asset pool, then liquidity providers in the variable yield position are paid out the remainder of assets

## **Subscription Requests**

Vaults must be deployed with the correct ratio of fixed and variable yield assets. At launch, Vaults must be deployed with equal value of fixed and variable yield deposits, though strategists can change this requirement in the future. As such, subscription requests are only confirmed when a Vault deploys -- at the end of the subscription period. Excess subscription requests for one position become available for liquidity providers to reclaim. Deposits are ordered in a queue and the last subscription requests to come in for the position that is over-subscribed are rejected, so there is some incentive to subscribe early.
