Settlement
Understanding VLF settlement mechanisms for yield, losses, and extra rewards
The VLF Settlement system periodically calculates the performance of VLF strategies and reward entitlement details for users. It synchronizes the status of assets utilized for VLF across branch chains with the Mitosis Chain through three types of settlements. The settlement system ensures transparent, accurate tracking of VLF performance while providing flexible distribution mechanisms for different types of rewards.
Settlement Types
Yield Settlement
When VLF generates rewards of the same type as underlying assets, mints equivalent hub assets to increase VLF asset value
Loss Settlement
Burns hub assets from VLF Vault to decrease VLF asset value when strategies experience losses
Extra Rewards Settlement
When VLF generates rewards of different type than underlying assets, mints hub assets for reward tokens and distributes them appropriately
Yield/Loss Settlement
This settlement type handles performance changes in the underlying VLF strategies:
Settlement Process
Settlement Trigger
Strategist triggers Yield/Loss Settlement on the VLF Strategy Executor
Balance Calculation
System computes total balance of underlying assets managed by VLF Strategy Executor, including both direct holdings and assets deployed in integrated DeFi protocols
Performance Determination
Current total balance is compared to last settled total balance, with the difference indicating whether there was yield (positive) or loss (negative)
Cross-Chain Messaging
Settlement information is transmitted to Asset Manager via cross-chain messaging
Hub Asset Adjustment
Asset Manager triggers minting (yield) or burning (loss) of hub assets from VLF Vault
Examples
Yield Settlement Example
Scenario: Compound strategy earns 5% APY over settlement period
- Previous Settlement: 100 ETH total balance
- Current Balance: 105 ETH (100 ETH principal + 5 ETH interest)
- Yield Detected: +5 ETH
- Action: Mint 5 ETH hub assets to VLF Vault
- Result: VLF asset holders benefit from increased share value
Loss Settlement Example
Scenario: Strategy experiences 2% loss due to market conditions
- Previous Settlement: 100 ETH total balance
- Current Balance: 98 ETH (market downturn)
- Loss Detected: -2 ETH
- Action: Burn 2 ETH hub assets from VLF Vault
- Result: VLF asset value decreases proportionally
Extra Rewards Settlement
This settlement type handles rewards in different tokens than the underlying assets:
Settlement Process
Reward Token Detection
Strategist identifies reward tokens earned by VLF strategies
Settlement Trigger
Strategist triggers Extra Rewards Settlement on VLF Strategy Executor
Token Transfer
Reward tokens are transferred from VLF Strategy Executor to Mitosis Vault for safekeeping
Cross-Chain Messaging
Settlement information is transmitted to Asset Manager via cross-chain messaging
Hub Asset Minting
Asset Manager mints hub assets corresponding to reward tokens
Treasury Storage
Minted hub assets are stored in Treasury for distribution
User Distribution
Hub assets are distributed to users through appropriate methods
Example
Scenario: Morpho lending earns MORPHO tokens
- Strategy: Supply ETH to Morpho lending protocol
- Reward Earned: 150 MORPHO tokens over settlement period
- Settlement Action:
- Transfer 150 MORPHO to Mitosis Vault
- Mint 150 MORPHO hub assets
- Store in Treasury
- Distribution: Merkle proof-based distribution to VLF participants