Overview
The counterparty to all Domination Finance positions is DomFiVault, an ERC4626-compliant yield-bearing vault where depositors can pool collateral to share the platform's risks and rewards. When traders win, the vault pays out their profit. When traders lose, their losses increase the vault balance.
Depositors who add collateral to the vault receive DOMD tokens. These tokens can be redeemed for a certain fraction of the vault balance. As traders win and lose collateral and pay fees, changing the vault balance, the redemption value of DOMD tokens will change. Though DomFiPerp includes many risk management parameters, it is not possible to guarantee that the vault will continuously rise in value over any particular period of time. But as long as fee income is greater than PnL payouts, the vault will increase in value.
Depositing liquidity
You can deposit liquidity into the vault through the Trade UI by navigating to the Vault page in the site menu. On-chain, this calls ERC4626 deposit or mint on DomFiVault. Depositing liquidity into the vault incurs a 0.1% deposit fee.
Withdrawing liquidity
Liquidity can be instantly removed if the vault is healthy. If the vault is not healthy, liquidity funds are released over time to prevent bank runs.
See Withdrawals for more information.
Liquidity Incentives
Trader Profits and Losses
Traders transfer collateral to the vault when they open a position as margin. If they close the position with 0 net PnL, collateral is returned. If they close with a loss or are liquidated, some or all of their collateral is kept by the vault, increasing the value of DOMD. If they close the position with a profit, the vault returns their collateral plus any profit, decreasing the value of DOMD.
If long and short positions for a product are equal in size, the PnL of the two sides cancels out and the vault balance will not change over time except for fee and interest income.
Trading Fees
When traders open and close positions, they pay fees. These fees are sent to FeeDistributor, which distributes 20% of fees to the Domination Finance treasury to finance development, 30% to the DAO for future community initiatives, and 50% to the vault's depositors.
Funding and Interest Rates
Funding rates tend to increase vault balance. If a product's long positions outweigh the shorts, longs pay a funding rate and shorts receive that same funding rate. But since long positions outweigh the shorts, more total funding is being collected than is being given out. If funding rates are effective, though, longs and shorts will be balanced, so there will not be much total funding income.
However, the interest rate uniformly decreases trader PnLs (and therefore increases vault balance as positions are closed or liquidated). See Funding and Interest Rates for more information.