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What is a Vault?

A vault in Mewler is an isolated lending market for a single ERC-20 token. Each vault operates independently with its own:
  • Interest rate model
  • Collateral and borrowing parameters
  • Oracle configuration
  • Risk parameters
Vaults are deployed using the Mewler Vault Kit (MVK) and follow the ERC-4626 standard for share accounting.

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Vault Types

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Borrowable Vaults

Borrowable vaults allow users to:
  • Deposit assets to earn interest (supply)
  • Use deposited assets as collateral to borrow other assets
  • Borrow the vault’s underlying asset

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Collateral-Only Vaults

Some vaults are configured as collateral-only, meaning:
  • Users can deposit assets to earn interest
  • Deposited assets can be used as collateral in other vaults
  • The vault’s underlying asset cannot be borrowed

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Vault Accounting

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Share-Based Model

Mewler uses a share-based accounting model similar to ERC-4626:
  • When you deposit assets, you receive vault shares (eTokens)
  • Shares represent your proportional claim on the vault’s assets
  • As interest accrues, the share price increases
  • When you withdraw, shares are redeemed at the current share price

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Share Price Calculation

Share Price = Total Assets / Total Shares
The share price increases over time as borrowers pay interest, which is distributed to lenders.

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Example

  1. Alice deposits 100 USDC when share price = 1.0
    • Receives: 100 eUSDC shares
  2. Interest accrues, vault now has 110 USDC
    • Share price = 110 / 100 = 1.1
  3. Bob deposits 110 USDC
    • Receives: 100 eUSDC shares (110 / 1.1)
  4. Total: 220 USDC, 200 shares, share price = 1.1
    • Alice can redeem 100 shares for 110 USDC
    • Bob can redeem 100 shares for 110 USDC

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Vault Parameters

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Collateral Factor

The collateral factor determines how much you can borrow against your collateral: 
Max Borrow = Collateral Value × Collateral Factor
For example, with a 75% collateral factor:
  • 1000collateral→canborrowupto1000 collateral → can borrow up to 750

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Liquidation Threshold

The liquidation threshold is the health score at which a position becomes liquidatable. Typically set lower than the collateral factor to provide a buffer.

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Interest Rate Model

Each vault has an Interest Rate Model (IRM) that determines:
  • Supply APY: Interest earned by lenders
  • Borrow APY: Interest paid by borrowers
Rates adjust based on utilization (how much of the vault is borrowed).

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Creating a Vault

Vaults are created using the Mewler Vault Kit. The process involves:
  1. Deployment: Deploy a new vault contract via the factory
  2. Configuration: Set parameters like:
    • Underlying asset
    • Interest rate model
    • Collateral factors
    • Oracle adapter
    • Optional hook targets
  3. Initialization: Initialize the vault with starting parameters
For detailed instructions, see the Developer Guide.

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Vault Lifecycle

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Deployment

A vault is deployed as an immutable contract (or upgradeable, depending on configuration).

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Active Operation

  • Users deposit and withdraw
  • Borrowers take and repay loans
  • Interest accrues continuously
  • Liquidations occur when positions become unhealthy

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Risk Management

Vault parameters can be adjusted by governance or risk stewards:
  • Collateral factors
  • Interest rate model parameters
  • Oracle configurations
  • Emergency pauses (if configured)

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Cross-Vault Interactions

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Using Vault Shares as Collateral

You can use eToken shares from one vault as collateral in another vault. This enables:
  • Leveraged positions
  • Complex DeFi strategies
  • Capital efficiency
Important: Using vault shares as collateral creates nested risk. If the underlying vault has issues, it can affect positions using its shares as collateral.

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References

For more details on the underlying architecture, see: