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Vault Mechanics

Understanding how the HALO vault operates is key to maximizing your returns and managing risk.

Core Architecture

The HALO vault is a smart contract that:

  1. Accepts USDT deposits from users
  2. Allocates capital to the AI-powered trading system
  3. Generates profits through market making and arbitrage
  4. Distributes yields proportionally to vHALO holders

How It Works

1. Deposit

Transfer USDT to the vault smart contract on BNB Chain.

2. Receive vHALO

Minted as proportional vault shares representing your ownership in the liquidity pool.

3. AI Bot Operation

Pool funds provide liquidity on Opinion and Polymarket – buying undervalued outcomes and selling overvalued ones.

4. Revenue Generation

Gross profits from captured spreads through:

  • Market making with optimized bid-ask spreads
  • Arbitrage opportunities when mispricing is detected
  • Dynamic position sizing using Kelly Criterion
  • Real-time spread adjustment via Avellaneda-Stoikov model

5. Performance Fee

20% deducted from gross profits:

  • 50% of fees → Rewards distributed to staked $HALO holders
  • 25% of fees → Used for $HALO buyback and burn
  • 25% of fees → Allocated to protocol treasury

6. Yield Distribution

Remaining 80% of profits compound in the vault, increasing the underlying pool value and thus the redemption value of vHALO tokens.

7. Withdrawal

  1. Request Withdrawal: Initiate withdrawal request
  2. 1-Day Lock Period: Wait 24 hours while bot unwinds positions
  3. Execute Withdrawal: After lock period, burn vHALO tokens to redeem proportional share of the vault (original USDT principal + compounded net profits)

Share Pricing

The vault uses a share-based pricing model. The price per share is calculated as:

price_per_share = total_vault_value / total_shares

As the vault generates profits, the total vault value increases, which increases the price per share. This means your vHALO tokens become more valuable over time.

Yield Generation

Yields are generated through multiple mechanisms:

1. Market Making Spreads

The AI-powered AMM places buy and sell orders with optimized spreads. When both sides are filled, the vault captures the spread:

spread_profit = (sell_price - buy_price) * quantity

2. Arbitrage Opportunities

When mispricing is detected (P_UP + P_DOWN < 1), the vault executes arbitrage trades:

arbitrage_profit = 1 - (P_UP + P_DOWN)

3. Compound Interest

All profits are automatically reinvested, creating compound growth for depositors.

Fee Structure

The vault charges a 20% performance fee on gross profits from spread capture:

  • Deposit Fee: 0% (no fee on deposits)
  • Withdrawal Fee: 0% (no fee on withdrawals)
  • Performance Fee: 20% of gross profits (only charged on gains)

Performance Fee Allocation

  • 50% → Staking rewards for $HALO stakers
  • 25% → $HALO buyback and burn
  • 25% → Protocol treasury (development, marketing, reserves)

Fee Transparency

All fees are clearly displayed before you confirm any transaction. No hidden fees or surprises.

Risk Management

The vault implements several risk management measures:

  1. Position Limits: Maximum position size per market
  2. Stop Losses: Automatic exit at predefined loss thresholds
  3. Diversification: Capital spread across multiple markets
  4. Reserve Buffer: Maintains reserves for unexpected withdrawals

Withdrawal Mechanics

Withdrawals require a 1-day lock period to allow the AI bot to unwind positions and return funds to the vault.

Withdrawal Process

  1. Request Withdrawal: Initiate a withdrawal request by specifying the amount of vHALO shares to burn
  2. Lock Period: Your funds are locked for 1 day (24 hours)
  3. Bot Unwinds Positions: During this time, the AI bot unwinds active trading positions on Opinion and Polymarket
  4. Funds Return to Vault: Unwound positions return USDT to the vault pool
  5. Withdrawal Execution: After 1 day, your withdrawal is processed:
    • Your vHALO shares are burned
    • You receive USDT proportional to the current share price
    • The vault's total shares decrease
    • Remaining depositors' share prices increase slightly

withdrawal_amount = shares_to_burn * current_price_per_share

Why the 1-Day Lock?

The 1-day lock period is necessary because the AI bot needs time to:

  • Unwind active market making positions
  • Close arbitrage positions
  • Return funds from Opinion and Polymarket to the vault
  • Ensure sufficient liquidity for withdrawal without disrupting active trades

Withdrawal Request

To withdraw, you must:

  1. Navigate to the vault page
  2. Click "Request Withdrawal"
  3. Enter the amount of vHALO shares you want to withdraw
  4. Confirm the withdrawal request
  5. Wait for the 1-day lock period to complete
  6. Execute the withdrawal after the lock period expires

Emergency Procedures

In case of emergencies or security issues:

  • Deposits may be temporarily paused
  • Withdrawals remain available (subject to normal fees)
  • All funds remain secure in the smart contract
  • Governance can vote on protocol changes

Next Steps