Liquidity Allocation
Understanding VLF liquidity allocation and management across branch chains
After users deposit hub assets into VLF Vaults, the underlying assets corresponding to these hub assets on the branch chain can be utilized for VLF liquidity opportunities. The Asset Manager maintains a comprehensive ledger for each VLF Vault tracking both allocated and idle liquidity.
The liquidity allocation system provides flexible, secure management of VLF liquidity across multiple chains while maintaining transparency and user control over their assets.
Liquidity States
Allocated Liquidity
Liquidity allocated for use in a VLF strategy on a specific branch chain
Idle Liquidity
Liquidity currently deposited in the VLF Vault but not yet allocated to any strategy
The strategist is the key role responsible for controlling liquidity allocation decisions across the system.
Liquidity Allocation Process
The process of utilizing idle liquidity from a VLF Vault for VLF strategies involves several coordinated steps:
Step 1: Strategist Decision
Strategy Assessment
Strategist analyzes available opportunities and determines optimal allocation
Chain Selection
Strategist decides which branch chain to allocate idle liquidity from a specific VLF Vault
Allocation Execution
Strategist executes the allocation through the Asset Manager, which performs validation checks
Asset Manager Validation Checks:
Idle Liquidity Check
Confirms sufficient idle liquidity exists in the VLF Vault
Branch Chain Liquidity
Verifies adequate liquidity exists in the Mitosis Vault of the target branch chain
Step 2: Ledger Update
Once validation passes:
- Asset Manager modifies its internal ledger data
- Idle liquidity is converted to allocated liquidity
- Allocation is recorded with specific branch chain
Step 3: Liquidity Utilization
Cross-chain Messaging
Allocation information is transmitted to the Mitosis Vault on the branch chain via cross-chain messaging
Liquidity Availability
The specified amount of liquidity becomes available for use by the VLF Strategy Executor
Fetch Liquidity
Strategist fetches the permitted amount of liquidity from Mitosis Vault to VLF Strategy Executor through fetchLiquidity()
function
Strategy Deployment
Liquidity in the VLF Strategy Executor is utilized according to predefined VLF strategies to generate yield
Liquidity Deallocation Process
The reverse process converts allocated liquidity back to idle liquidity in the VLF Vault:
Step 1: Strategy Unwinding & Deallocation
Strategy Unwinding & Return
Strategist unwinds positions and calls returnLiquidity()
to move assets from VLF Strategy Executor back to Mitosis Vault
Deallocation & Access Restriction
Strategist calls deallocateLiquidity()
function which restricts VLF Strategy Executor access to the specified liquidity amount
Cross-Chain Messaging
Deallocation information is transmitted to Asset Manager via cross-chain messaging
Step 2: Ledger Update
Once deallocation information is received:
- Asset Manager receives and processes the cross-chain message
- Allocated liquidity is converted back to idle liquidity for the VLF Vault
- Increased idle liquidity becomes available for new allocations or reclaim reservations