Trading vault risks in edge cases

General
3

For clarity, the vault you’re describing in this case is the counterparty to the (bullish) levered basis traders. So, the vault:
A) Lends only or
B) Lends + is long perps on World and short on another venue like Hyperliquid to stay market neutral

  1. Yes, this is because of liquidity. The slider adapts to liquidity in the order book, so the leveraged is limited by how much you can practically borrow.

    1.1. Assuming this short lived contangio does not happen over a funding payment (which happens every 8 hours), there should be no effect on the vault for either scenarios A or B (above).

    1.2. I’ve described this here because it’s a longer answer: How can the counterparty to the (bullish) Levered Basis Trade lose money?

  2. Yes, every asset has 2 values which ultimately determine leverage: A) volatility parameter and B) liquidity parameter. These are necessarily assset specific

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