Mechanism

How Loss Buffer Vault Works

When the trader loses (pool wins)

• The pool receives the loss (collateral from the position).

• A configurable percentage of that amount is sent to the Loss Buffer Vault instead of going entirely to the main vault liquidity.

• This builds the buffer that will later cover trader profits.

⠀When the trader wins (pool loses)

• The pool would normally pay the profit from reserved/collateral.

• If the Loss Buffer Vault has balance, up to the profit amount (capped by available vault balance and by what’s actually being paid) is withdrawn from the vault and used to cover that payout.

• The rest of the payout still comes from the pool (reserved/liquidity) as before.

• So the vault softens the hit to LPs when traders are profitable.

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Where it applies

• Decrease / close position — On position decrease/close, if the trader has profit, the vault can cover part of it; if the trader has loss, a percentage of that loss is deposited into the vault.

• Liquidation — When a position is liquidated, a configurable percentage of the trader’s loss (the part that goes to the pool) can be sent to the Loss Buffer Vault instead of 100% to main liquidity.

• So both “normal” exits and liquidations feed and use the buffer.

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Parameters

• Loss percentage (e.g. on decrease) — Share of pool profit (trader loss) that is sent to the vault.

• Liquidation percentage — Share of trader loss in a liquidation that is sent to the vault.

• Enabled flag — The vault can be turned off so all flows go to/from the main vault only.

Safety and caps

• Withdrawals from the vault are limited to what’s actually needed for the current payout and never exceed the vault’s balance.

• Deposits are capped by the amount actually available (e.g. the pool’s share of the loss).

• So the vault never creates new value; it only redistributes between “main LP liquidity” and “buffer” to smooth volatility.

Summary

• Loss Buffer Vault = protection layer for LPs that decreases volatility.

• Trader loses → a percentage is deposited into the vault (builds the buffer).

• Trader wins → the vault covers part of the payout when it has balance.

• Used on position decrease/close and liquidations, with separate configurable percentages.

• Governance can enable/disable and set percentages per collateral vault.