# Flow of Funds

This diagram outlines the full lifecycle—from user deposit to yield generation and redemption—showing every participant involved.

### Lifecycle Overview

<figure><img src="https://2939257221-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FBkbdCnPSZgUYVIXZJJrm%2Fuploads%2FXGqOTXT03TNb1LQLxF2t%2Fimage.png?alt=media&#x26;token=acb4e33d-7811-42b7-bcce-627e96a598d9" alt=""><figcaption><p>Example flow of funds from deposit to redemption, via vaults, custodians, and managers</p></figcaption></figure>

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### Step-by-Step Breakdown

#### 1. **Vault mints tokens in exchange for stablecoins**

Users receive ERC-20 vault tokens that represent their position and accrue value over time.

#### 2. **Vault allocates to assets**

Capital is deployed into tokenized assets (e.g., U.S. Treasuries, ETFs).

#### 3. **Custodian secures funds**

Both assets and cash are held by third-party custodians (e.g., BNY Mellon), never Nest, to generate returns.

#### 4. **Manager (e.g., Simplify) deploys capital**

Asset managers allocate funds to yield-generating strategies like:

* Short-term U.S. Treasuries
* ETFs, public debt, commodities

#### 5. **Tokenization partner returns yield from asset manager**

Tokenization partner returns dividends and yield from the asset manager's strategy back into the vault

#### 6. **Vault token goes up in value**

As yield is distributed back to the vault, the value of vault tokens increases proportionally.

#### 7. **User redeems at any time**

Users can redeem vault tokens for principal + yield.

### Related Pages

* [Vault Overview](https://docs.nest.credit/about/vaults)
* [Assets Used in Vaults](https://docs.nest.credit/about/assets)
* [Security & Compliance](https://docs.nest.credit/security-and-compliance/audits)