Vault Type 2

The only difference with regards to Vault type 2 is that the ZAP feature doesn’t conduct any 50/50 split (potentially incurring slippage).

1. Instead, during deposits the smart contract:

   • Deducts deposit fee and facilitates the user's token into the pool and receives the pool's LP token. Or deducts the deposit fee on the LP token and deposits it directly if that option is selected.

   • Deposit the pool LP token into the incentivized rewards contract and mint a user the vault’s LP token using the ‘PricePerShare’ Formula.

$$T = V * P$$

2. On withdrawal, the smart contracts will:

   • Users' equivalent share of the vault (in the underlying Pool LP tokens) will be calculated based on the amount Vault tokens the user burns.

   • Those equivalent pool LP tokens will be unlocked and either sent to the user or liquidated from the underlying pool to release the underlying token using the Zap Out contract and the released token will be sent to the user.

It is important to understand that what the vaults are holding with regards to assets are the underlying strategies LP token and not the underlying tokens. The vaults allow users to deposit the underlying tokens which are then deployed into the underlying pool to receive the LP token for the vault’s specific strategy.

The Vault is responsible for using this LP token to farm any available token rewards, harvest and compound them back into the pool. This way the users are not subject to price volatility of the reward token and the APR being offered is realized by selling the reward tokens for stable coins periodically. The way each vault keeps track of which user owns what share of the vault is by minting the user vault tokens, which is essentially a proof of deposit and represents the user’s pro-rata share of the vault’s assets (in this case the vaults assets would be the strategies LP token). The user is minting vault tokens using the ‘Price per Share’ formula.