Understanding Single Asset Vaults on XRP Ledger

Single asset vault on the XRP Ledger.

Here's the three minutes long breakdown starting now.

You might have seen protocols that take in user funds

and pay out yield in

return. But when we build something similar on the

XRP Ledger, how

is that supposed to work? It starts with the money itself.

Where does it come from, and who pays the yield you earn?

This video answers the first one. The money comes from a pool.

Let's see how that works.

Imagine one person lending directly to one borrower.

It works, but it is slow and risky. The lender has to find a borrower,

trust just that one person, and wait to be repaid before the money can

be used

again. So instead, many people put their money into one

shared pool.

Now the advantages flip. There is always money ready to lend.

Anyone can take part, even with a small amount.

That's instead of funding a whole loan alone.

Borrowers draw from one large pool and can be funded right

away, and it is simple. You just put money in and redeem it

later with no slow bank wires that take days to settle.

And the pool never sits still. As borrowers repay, that money is

lent out again over and over. On the XRP Ledger, this

shared pool is called a vault.

Let's look at that vault closely. Alice is a depositor.

She wants to earn a return on her money by lending it out.

She deposits one hundred thousand RLUSD into the vault.

Behind the scenes, the vault is a special account on the ledger

that holds

everyone's pooled money. In return, she gets shares.

Think of shares as a receipt that says how much of the pool she owns.

On the very first deposit, it is simple.

Shares equal the amount she put in.

Now a second depositor joins. Diana deposits fifty thousand

RLUSD into the pool and receives fifty thousand shares in

return.

So what each person owns is just their share of the total.

Alice holds one hundred thousand of the one hundred and fifty thousand shares.

That is two-thirds of the pool. Diana owns the other third.

This is the single asset vault. One vault holds one asset.

It can be XRP, an issued token, or a multipurpose token.

Here is why anyone would deposit in the first place.

On its own, the vault is just money sitting still,

and it earns nothing.

It becomes yield-bearing only when that money is put to work by a

yield-generating XRPL primitive,

such as the lending protocol that lends it out at interest,

as well as other

future primitives on XRPL. So this activates yield on idle

assets on-chain. When the pool earns money from

that interest on

loans, the total value of the pool goes up,

but the number of

shares stays the same, so each share is now worth more.

To cash out, you redeem your shares.

What you get back is your slice of the pool, your shares divided by total

shares times the pool's value. Alice owns two-thirds.

Two-thirds of one hundred and sixty-five thousand RLUSD

is one hundred and ten

thousand. She deposited one hundred thousand,

so she has earned ten

thousand RLUSD just by supplying liquidity.

One more thing that matters for institutions,

a vault can be public where anyone

can deposit, or it can be private, gated by a permissioned domain.

Only approved participants can join, which is useful for regulated

institutions.

So that is the vault. Many depositors, one pool, shares that grow in value.

But a pool just sitting there earns nothing.

So someone has to lend it out. How would that work?

That is exactly what the XLS-66 lending protocol covers.

We are going to have a look at it in the next video.