Flow of Funds
A detailed overview of the flow of funds for capital provider deposits
This page explains the capital provider deposit flow in Nest. It outlines where funds go, how they are managed, and the role of each participant in the process.
Capital Provider Initiates Deposit
Who: The capital provider (user) begins the process.
Action: Deposits stablecoins (e.g., USDC.e or pUSD) into a vault via the Nest interface or a compatible wallet.
Output: The capital provider receives vault tokens (e.g., $nRWA), representing their share in the vault.
Vault Manager Buys Tokens from Yield Issuers
Who: The vault manager oversees fund deployment.
Action:
The vault manager decides how to allocate the vault's stablecoins across various yield issuers.
Allocations are optimized to achieve the vault's target annual percentage yield (APY) based on:
Loan opportunities offered by yield issuers.
Risk-reward profiles.
Diversification across lending activities.
End-to-end financial auditing of underlying assets.
Output: Stablecoins are distributed to yield issuers in exchange for underlying tokens (e.g., $CBL).
Yield Issuers Deploy Funds to Borrowers
Who: Yield issuers (e.g., lending platforms, asset managers).
Action:
Yield issuers lend the received stablecoins to borrowers under agreed terms.
Borrowers repay loans with interest over time.
Output: Borrowers receive funds, generating yield for the protocol as they repay.
Borrowers Repay Loans with Interest
Who: Borrowers repay their loans to the yield issuer.
Action:
Loan repayments include both the principal and interest.
Interest collected increases the value of the underlying tokens held by the vault.
Output: Underlying tokens grow in value, directly boosting the vault’s overall worth.
Vault Token Value Increases
Who: The vault accrues value through underlying token appreciation.
Action:
As underlying tokens grow in value, the total value of the vault increases.
This growth is reflected in the increasing value of vault tokens held by capital providers.
Output: Capital providers’ vault tokens are worth more over time, representing their share of the vault's accrued returns.
Vault Manager Ensures Liquidity
Who: The vault manager monitors liquidity levels.
Action:
Tracks fund deployment, borrower repayments, and the vault’s available reserves.
Ensures enough liquidity is retained to handle withdrawal requests from capital providers.
Output: The vault operates efficiently, allowing smooth deposits and withdrawals.
Capital Provider Withdraws Funds (Optional)
Who: The capital provider chooses to redeem their vault tokens.
Action:
Vault tokens are burned, and the vault redeems its underlying tokens with yield issuers.
The vault receives stablecoins (including accrued interest) and transfers them back to the capital provider.
Output: The capital provider exits the system with their original deposit plus accrued returns.
In summary
Capital Provider → Vault: Stablecoins are deposited, and vault tokens are issued.
Vault → Vault Manager → Yield Issuers: The vault manager optimizes fund allocation across yield issuers to meet the target APY.
Yield Issuers → Borrowers: Stablecoins are lent to borrowers, who repay with interest.
Borrowers → Yield Issuers → Vault: Loan repayments grow underlying token value, increasing the vault's worth.
Vault → Capital Provider: Upon withdrawal, stablecoins (including accrued yield) are returned to the capital provider.
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