What is a Vault?

Vaults are a core component of the BVS (Bitcoin Validation Service) architecture, designed to securely manage assets while enabling operators to provide validation services. Vaults serve as the primary interface for users to deposit assets, receive shares, and withdraw assets when needed.

Philosophy & Concepts

The vault system is designed with several key principles in mind:

Symmetry of Interfaces

All vaults implement a common interface defined in the bvs-vault-base contract. This symmetry ensures that regardless of the underlying asset type, vaults behave consistently and predictably. The common interface includes deposit functionality where users can deposit assets and receive shares, withdrawal functionality allowing users to withdraw assets by redeeming shares, queued withdrawals when an operator is validating, and redemption after a lock period for queued withdrawals.

This symmetry simplifies integration with other components and provides a consistent user experience across different asset types.

Vault Factory

The vault factory is responsible for deploying different types of vaults. This component maintains code IDs for different vault types and ensures that vaults are created with the correct parameters. The factory provides standardization by ensuring all vaults are created with consistent parameters and configurations. Additionally, it enables upgradability as the factory can be updated to deploy new versions of vaults. The system enhances security by ensuring that only authorized operators can create vaults.

Vault Router

The vault router plays a critical role in coordinating vaults across the system. It handles whitelist management, ensuring that only whitelisted vaults can accept deposits, which adds a layer of security for users. The router tracks operator status, maintaining information about which operators are actively validating. It coordinates withdrawals by managing withdrawal lock periods, ensuring orderly exits from the system.

Asset-Specific Vaults

Each vault is designed to handle a specific asset type. This separation provides several advantages. Each vault can implement specialized logic for its asset type, ensuring optimal handling of the asset’s unique characteristics. The isolation ensures that issues with one asset don’t affect other assets, enhancing system stability. Exchange rate integrity is maintained as each vault manages its own exchange rate between shares and assets.

Operator-Specific Vaults

Each operator has their own set of vaults for each asset type. This design decision is crucial for isolation to facilitate independent accounting—operators do not share vaults. The approach provides slashing isolation, ensuring that if an operator is slashed, only their vaults are affected, protecting other operators and their users. Operators can customize their vaults based on their specific needs and strategies. This design also enhances accountability by providing clear attribution of responsibility for each vault’s performance and security.

Relationship to Slashing

Vaults are closely tied to the slashing mechanism. When a service needs to slash an operator, it does so through the vault router, which coordinates the slashing across all operators’ vaults. It ensures that the slashing is proportional across all assets, maintaining fairness in the penalty system. The architecture guarantees that the slashing affects only the operator’s vaults, not other operators, preserving the integrity of the system.

Vault Types

CW20

CW20 vaults are designed for CW20 tokens in the CosmWasm ecosystem. They allow users to deposit CW20 tokens and receive shares in return. These vaults use CW20 token transfers to move assets between users and the vault. The vaults handle CW20 token deposits and withdrawals, maintaining a robust conversion mechanism between shares and assets. Shares are not tokenized, meaning they are not tradable tokens but rather represent a claim on the underlying assets.

For security and predictability, these vaults only support standard CW20 tokens, excluding non-standard tokens with fee-on-transfer mechanisms.

Bank

Bank vaults are designed for native tokens (denom) in the ecosystem. They allow users to deposit native tokens and receive shares in return. These vaults use bank transfers to move assets between users and the vault. They efficiently handle native token deposits and withdrawals through the Cosmos bank module. Like their CW20 counterparts, they maintain a precise conversion mechanism between shares and assets, ensuring fair value representation. Shares are not tokenized, meaning they are not tradable tokens but rather represent a claim on the underlying assets.

CW20 Tokenized

CW20 Tokenized vaults allow operators to issue Liquid Re-staking Tokens (LRTs) directly for CW20 tokens, bringing significant benefits to enhancing liquidity and capital efficiency. Users receive tradable LRTs representing their staked assets, allowing them to participate in DeFi activities while still earning staking rewards.

This creates a more capital-efficient system where value can flow freely throughout the ecosystem. Additionally, the tokenized approach simplifies the user experience by providing a familiar token interface that can be easily integrated with other protocols and applications.

For security and predictability, these vaults only support standard CW20 tokens, excluding non-standard tokens with fee-on-transfer mechanisms.

Bank Tokenized

Bank Tokenized vaults extend the benefits of tokenization to native tokens in the Cosmos ecosystem. These vaults would enable operators to issue Liquid Re-staking Tokens (LRTs) directly for native tokens like ATOM or other IBC-enabled assets. Users receive tradable LRTs representing their staked assets, allowing them to participate in DeFi activities while still earning staking rewards.

Similar to CW20 Tokenized vaults, this creates a more capital-efficient system where value can flow freely throughout the ecosystem. Additionally, the tokenized approach simplifies the user experience by providing a familiar token interface that can be easily integrated with other protocols and applications.