How the Money Flows

We just saw the fund run the funding loop and keep the funding for itself - so the obvious question is: if the trader pockets the funding, how do the LPs ever get paid?

The answer is one number we've already met in passing: the borrow rate. Everything in this chapter hangs off it.

The borrow rate is the bridge

To run the loop, the fund has to borrow. It borrows USDC against its eTokens and pays interest - the toll Own collects for supplying the cheap, leveraged long leg. The trader is happy to pay it, because it's funded out of the much larger funding income collected on the outside venue.

Here's the trick: the borrow rate isn't a single made-up number. It's built in two layers.

  Funding the trader collects (~13%)
        |
        |  they happily pay borrow interest out of it...
        v
  Borrow rate (~7%)  =  external base rate (~4%, Aave)
                      +  Own premium (~3%, rises with demand)
                              |
                              v
              the premium is what pays the marketplace

The first layer is the base rate - the cost of the raw dollars. The USDC a borrower draws comes from the vault's credit line at Aave, the big onchain money market, and Aave's own rate passes through at cost. (On chains without Aave, the protocol runs its own simple lending pool instead - same idea.)

The second layer is the Own premium - roughly 3% on top at launch, rising as the book fills. This is the part Own adds, and it's the piece that pays the marketplace: it accrues into every borrower's debt, is swept to the Vault Manager as loans are repaid, and the manager distributes it onward - the lion's share into the vault, where it lifts the price of every LP's vault shares.

And here's what makes the machine self-tuning: when funding runs hot, borrowing demand rises, the premium rises with utilization, and LP yield climbs automatically - exactly when the system most needs to attract collateral. Nobody turns a dial. The design rule is simply to keep the borrow rate comfortably below perp funding (~7% vs ~13%) so the trade stays profitable and the book stays full.

What LPs actually earn: three layers

So what does an LP take home? Their yield stacks three layers, and the mix depends on which collateral vault they're in:

Layer one is native yield - what the collateral earns just by existing. This is why the vaults hold yield-bearing forms of each asset: USDC deposits sit in Aave as aUSDC, ETH as staked ETH. The vault doesn't have to do anything; the shares appreciate on their own.

Layer two is the lending premium we just traced through the bridge - the borrowers' interest above the base rate, flowing to LPs through the vault.

Layer three is the flow share: the revenue the collateral's standing produces beyond lending. Two streams feed it - dividends that accrue on the eTokens sitting as loan collateral in the borrow book (they accrue to the vault, not the borrower, while the loan is open), and the protocol's cut of PSM fill spreads, routed to the vault alongside the premium.

The habit worth keeping: read each vault against its own benchmark, not against the others. The stablecoin vault competes with Aave and roughly doubles it. The staked-ETH vault competes with plain staking and roughly doubles that. The BTC vault competes with idle Bitcoin, which earns nothing - its real job is to diversify the collateral mix. Across the board, the target is about twice what the same asset earns on its own - and these are model projections at a healthy operating point, not promises. Real yields move with rates, utilization, and flow.

Where the trading money goes

One more stream to place, because it's the one Maya actually paid: the spread on her mint and redeem.

There's no protocol fee hiding in it. The full payment routes to the market maker, whose margin is the spread baked into its quoted price - that's what pays the firm for quoting around the clock and running the backfill loop. The permissionless PSM fills are the one place a protocol fee can exist at all: the treasury may take an admin-set share of a filler's spread over the fair price (it launches at zero, and by construction it only ever taxes the arbitrageur's edge, never the order owner or the backing).

So the full money map reads:

  TRADERS pay:            spread            borrow interest
                            |                     |
                            v                     v
  EARNED BY:          market makers      base rate → Aave (at cost)
                     (quote + backfill)  premium  → Vault Manager
                                                     ├─► LPs (share price ↑)
                                                     └─► protocol treasury cut
  PLUS, TO LPs:      native yield  +  dividends on custodied collateral
                                   +  PSM fill-fee share

Everyone is paid out of real activity - and the next chapter shows the few dials that keep those flows balanced on their own.

What just happened

• The fund keeps the funding but pays the borrow rate (~7%) to run the loop - and that rate is the bridge that pays the marketplace.
• The rate = the external base rate (Aave's, passed through at cost) + the Own premium (~3% at launch), which flows through the Vault Manager to LPs by lifting the vault share price.
• Hot funding → more borrowing → higher premium → LP yield rises automatically, pulling in the collateral the system needs.
• LP yield stacks three layers - native yield + lending premium + flow share (dividends on custodied eTokens, PSM fill fees) - projecting to roughly 2x each collateral's own benchmark (~7.5% stablecoin, ~6.2% staked ETH, ~3.6% BTC). Projections, not promises.
• The mint/redeem spread pays the market makers in full; the only protocol-fee lever anywhere is a share of PSM fillers' edge, launching at zero.