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How It Works

This document explains the complete flow of Unbound’s delta-neutral vault.

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Deposit Flow

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Step 1: User Initiates Deposit

User connects wallet and deposits wBTC through the frontend.

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Step 2: Vault Processes Deposit

The vault smart contract:
  1. Receives user’s wBTC
  2. Keeps 50% as wBTC in vault (LONG exposure)
  3. Swaps other 50% to USDC via AVNU
  4. Queues deposit for backend processing
  5. Mints vault shares to user

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Step 3: Backend Opens Position

Backend DepositProcessor detects queued deposit:
  1. Calls process_deposits() on vault (mints shares, transfers USDC)
  2. Deposits USDC to Extended exchange
  3. Opens SHORT position matching wBTC value (delta-neutral)

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Deposit Flow Diagram

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Delta-Neutral Position

After deposit, the vault holds:
ComponentLocationBTC Exposure
50% wBTCVault contract+0.5 BTC (LONG)
50% USDCExtended exchange0 (margin)
SHORT positionExtended-0.5 BTC
Net exposure0 (NEUTRAL)

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Funding Payments

Extended charges/pays funding every hour using this formula: 
Funding Payment = Position Size × Mark Price × Funding Rate

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When Funding is Positive (84% of time)

Longs pay → Shorts receive
Result: Your equity in Extended grows

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When Funding is Negative (16% of time)

Shorts pay → Longs receive
Result: Your equity in Extended shrinks

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Position Manager

Backend PositionManager monitors funding rate every 60 seconds:
  • If funding < -0.01%: Closes all shorts to avoid paying
  • If funding recovers: Allows reopening positions
NAV = wBTC Value + Extended Equity 
Example with $5,000 deposit:
├── wBTC held: 0.0284 BTC × $88,000 = $2,500
├── Extended equity: $2,600 (including funding earned)
└── Total NAV: $5,100
Share value = NAV / Total Shares

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Withdrawal Flow

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Step 1: User Requests Withdrawal

User calls request_withdraw(shares) on vault:
  • Shares are locked
  • Withdrawal queued with status PENDING

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Step 2: Backend Processes Withdrawal

Backend WithdrawalProcessor detects pending withdrawal:
  1. Calculates USDC value of shares
  2. Closes proportional short position
  3. Withdraws USDC from Extended
  4. Calls mark_withdrawal_ready() on vault

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Step 3: User Completes Withdrawal

User calls complete_withdrawal():
  1. Vault swaps USDC → wBTC via AVNU
  2. Distributes proportional wBTC from vault holdings
  3. Burns shares
  4. Sends total wBTC to user

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Withdrawal Flow Diagram

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Key Events

EventWhat Happens
User Deposits50% kept as wBTC, 50% → USDC → Extended → SHORT
Funding PaymentEvery hour, equity grows/shrinks based on funding rate
User WithdrawsClose proportional SHORT → USDC + wBTC → User