SIP-5B: Community Vaults

Summary

SIP-5B is the second rollout phase of SIP-5. It introduces Community Vaults, the capital layer of Universal Markets. Community Vaults are created by users and funded by the community, and they supply the trading capital, maker budgets, and insurance buffers that Universal Markets are built on.

A vault’s type is determined at creation, and there are three types, each serving a different purpose with its own economics, risk rules, and exit rules:

1. Community Strategy Vault. Depositors fund an owner who trades on StandX Perps, and returns come from trading PnL. Depositors hold LP tokens priced at NAV and are protected by standing risk controls.
2. Community Reward Vault. The maker incentive budget of a trading pair. A Market Sponsor must create one when listing a new pair, and both the Sponsor and the community can fund it. Its assets are distributed to community makers through SIP-5A under reward parameters set by the Sponsor, and the return on this capital is realized through the market’s growth and fee flow.
3. Community Shield Vault. The insurance capital of trading pairs. Depositors underwrite liquidation tail risk in exchange for liquidation fees and insurance premiums, with risk isolated per pair. The pair’s Sponsor must hold a locked minimum position in this vault before the market can open for trading.

Where SIP-5A activated the yield layer of Universal Markets, SIP-5B activates the capital layer.

Motivation

SIP-5 defines two vault primitives at the heart of every Universal Market: the Reward Vault that hires community market makers, and the Shield Vault that absorbs losses ahead of ADL. In the original SIP-5 framing, both are funded by a single Sponsor. That concentrates the capital requirement on one party, while the willingness to back a market is in fact distributed across a community. Many participants want exposure to a market’s trading returns, its maker yield flow, or its liquidation fee flow, without becoming a full Sponsor themselves.

Opening the Shield Vault to community capital also raises a question SIP-5B must answer directly. If depositors supplied all of the insurance capital while the Sponsor merely initiated the market, configured its parameters, and collected fee share, the Sponsor’s rights would decouple from their responsibility. Community capital widens who can back a market; it must not replace the Sponsor’s own capital at risk. SIP-5B therefore pairs the community capital layer with a mandatory Sponsor commitment: the Sponsor must hold a locked minimum position in the market’s Shield Vault, and the market cannot open for trading until they do.

Opening these capital roles to the community requires respecting how differently the three kinds of capital behave:

A budget designed to be paid out cannot share LP economics with a trading strategy, and insurance capital that must stay reliably present cannot share exit rules with either. SIP-5B therefore defines three separate vault products on a common creation and transparency standard. A vault’s type is determined at creation, so depositors always know which product they are entering.

SIP-5B also keeps roles separate. The Vault Manager operates a vault’s capital, the Capital Provider deposits into it, and the Market Sponsor initiates and maintains a market as defined in SIP-5. Operating a vault and sponsoring a market are separate undertakings, and the Sponsor role is taken on only through the SIP-5 listing process.

Relationship to SIP-5 and SIP-5A

SIP-5 defines what the Reward Vault and Shield Vault do inside a market, with a strict separation between reward capital and the capital that absorbs losses. SIP-5A defines how Reward Vault budgets reach community makers through daily Community Maker Yield. SIP-5B defines the vaults themselves as community products, covering creation, funding, accounting, risk controls, and exit rules for each of the three types.

A Community Reward Vault plugs directly into the SIP-5A distribution rail, with its assets flowing to community makers under the daily Maker Hours accounting. A Community Shield Vault plugs directly into the liquidation flow that SIP-5 specifies, absorbing positions the order book cannot, ahead of ADL.

Specification

Common Vault Standard

The following applies to all three vault types:

• Any user can create a vault, and a single user can create and operate multiple vaults, each with independent capital, accounting, and risk state. The creator is the vault’s owner and acts as its Vault Manager.
• The vault’s type is determined at creation, and each type follows its own rule set from that point on.
• Vault balances, open positions, distribution history, and parameter settings are fully transparent on the platform.
• A vault can be closed by its owner only when it holds no open orders and no open positions, and, for Reward and Shield Vaults, only after the unwind process of its associated pairs completes. Closure settles remaining balances per the vault type’s rules.

Community Strategy Vault

The Community Strategy Vault is delegated trading capital. Depositors fund the vault, the owner trades with it on StandX Perps, and returns come from trading PnL and the native yield of DUSD margin.

Deposits and LP Tokens

When a user deposits into a Strategy Vault, they receive the vault’s LP token, priced by the vault’s net asset value, which marks balances and open positions continuously, including unrealized PnL, funding, and accrued DUSD yield. Deposits mint LP tokens at the current NAV price, and withdrawals burn LP tokens at the NAV price in effect when the withdrawal settles.

The owner’s capital and depositors’ capital sit in the same LP token accounting at the same price, and gains and losses are borne proportionally by all holders.

Owner Minimum Share

The owner’s personal holding must remain at or above a minimum share of the vault’s total holdings. The threshold is a protocol parameter, set to 5% at initial launch.

• Owner shares are locked and cannot be transferred while the vault is active.
• While the owner’s share is at or below the threshold, the owner cannot withdraw their own portion.
• If new deposits would dilute the owner below the threshold, the vault stops accepting new deposits until the owner tops up.

The requirement works through exit ordering. All LP tokens bear losses proportionally, and what the owner gives up is the ability to leave first, which keeps the party making trading decisions exposed to their outcomes for as long as any depositor remains. A true junior tranche structure, in which owner capital absorbs losses ahead of depositors, is a possible future extension.

Withdrawal Processing Window

When a depositor requests a withdrawal, the vault must process it within a maximum of 4 days under normal market conditions.

• During the window, the owner can proactively reduce positions to free available balance and settle the withdrawal early.
• If the deadline approaches with insufficient available balance, the system automatically deleverages the vault to the extent required to honor pending requests.
• Pending requests within the same processing epoch are settled pro rata against available balance, so early requesters cannot exit at the expense of later ones.
• Under abnormal conditions (oracle suspension, a market in ReduceOnly, no executable liquidity), processing is suspended with the reason surfaced on the vault page, and resumes when normal conditions return. If a vault is insolvent, withdrawals settle at the impaired NAV.

A depositor’s exit therefore does not depend on the owner’s cooperation. The owner decides how the vault deleverages inside the window, and the protocol enforces that it deleverages by the end of it, whenever market conditions allow orderly execution.

Community Reward Vault

The Community Reward Vault is the maker incentive budget of a trading pair. When a Market Sponsor lists a new pair under SIP-5, creating and funding that pair’s Reward Vault is a mandatory part of the listing. The vault’s owner is therefore the pair’s Sponsor by construction, with Sponsor status coming from the listing process itself.

Economics and Funding

A Reward Vault’s assets are designed to be spent. They flow out to community makers every day, so the vault issues no LP tokens and its balance is expected to decline as the budget is distributed. The return on this capital is realized through the market it funds:

More reward budget → more makers compete → deeper, tighter order book
→ more traders, more volume → more trading fees
→ fee share flows to the Sponsor, and recycles back into the vault via Stand Mode

The vault accepts funding from the following sources:

• The Sponsor funds the vault at listing and may top it up at any time. The Sponsor’s return is the market’s fee share, as defined by SIP-5.
• Stand Mode (per SIP-5) routes the Sponsor’s fee share back into the vault automatically, compounding the loop.
• Community members may contribute alongside the Sponsor to strengthen the pair’s maker incentives. Their return is the market they care about becoming deeper and more tradable. Contributions are recorded on the vault’s public ledger and carry no claim on the budget or on future distributions.

No Free Withdrawal

Committed budget cannot be withdrawn freely. The market’s makers rely on the budget’s presence, so the vault follows the release schedule declared at listing, and early unwind goes through the market delist process defined by SIP-5. If the vault balance falls below the minimum threshold for its Market Type, the SIP-5 penalty clauses apply and the market enters ReduceOnly until replenished.

Reward Parameters: bps/Depth Tiers

The Sponsor configures how the budget is spread across the order book:

• The Sponsor defines a set of bps/depth tiers, each pairing a distance band from the mark price with a reward percentage, and all tier percentages must sum to exactly 1 (100%).
• Tiers decide how much budget each price band carries, and the daily Maker Hours accounting of SIP-5A (quoting on both sides, uptime, proximity weighting) decides each maker’s share inside a band. Proximity is counted once, inside the SIP-5A curve.
• If a tier has no qualifying makers in an epoch, that tier’s budget stays in the vault and rolls into future epochs.

This gives a Sponsor direct control over the liquidity shape they are paying for. Weighting tight tiers buys a tight top of book, while spreading budget across wider bands buys depth that holds up through volatility.

Community Shield Vault

The Community Shield Vault is insurance capital standing in front of ADL for the trading pairs it backs. Depositors hold LP tokens priced at NAV and underwrite tail risk in exchange for insurance income.

Behavior

When a liquidation occurs on an associated pair and the order book cannot absorb the position at acceptable prices, the Shield Vault steps in, taking over the liquidated position at the liquidation price and receiving the corresponding liquidation fee. The vault then manages the inherited position within its own risk limits, unwinding or hedging at the owner’s discretion. The Shield Vault itself remains subject to standard margin requirements, and detailed execution parameters (takeover limits per event, unwind constraints, fee formulas) are published with each pair’s association terms.

Return and Risk

The vault’s income comes from liquidation fees, from insurance premiums (an associated pair may route a configured share of its trading fees to its Shield Vault as an ongoing premium), and from the PnL of inherited positions. The risk is equally real, since the vault takes on positions precisely at the moments the market least wants them. A Shield Vault runs an insurance business, and it earns like one and loses like one.

Sponsor Commitment and Locked Shares

Community capital does not dissolve the Sponsor’s capital responsibility. Every market defines a required_sponsor_commitment, the minimum equity its Sponsor must hold in the market’s Shield Vault. The amount is set per market from its OI cap, maximum leverage, expected volatility, oracle quality, and projected liquidation scale; markets do not share one fixed number.

The Sponsor meets the requirement by depositing into the vault like any other LP. The corresponding LP shares are then marked as locked_sponsor_shares:

• they cannot be redeemed or transferred while the market is active;
• they cannot be counted toward the launch commitment of any other market;
• they unlock only after the market completes Sunset and every inherited position and remaining liability is settled;
• compliance is measured against the shares’ current NAV, not the historical deposit amount, so a drawdown in the vault can put a Sponsor below requirement even if they never withdrew a cent.

Sponsor and community depositors hold the same LP token at the same NAV and bear the vault’s gains and losses in proportion. What sets the Sponsor apart is not a different risk instrument but forced lockup and last exit: the Sponsor keeps skin in the game for the market’s entire life.

Trading Gate

A market moves from Bootstrapping to Live only when all of the following hold:

• the Sponsor’s locked equity in the associated Shield Vault meets required_sponsor_commitment;
• the Shield Vault’s total underwriting capital meets the market’s risk requirement;
• the market’s Reward Vault holds enough maker budget for its declared release schedule;
• the oracle source, maker depth, OI cap, and risk parameters pass review.

The gate makes Sponsor funding a precondition of trading rather than an optional signal, closing the market startup loop that SIP-5 defines.

Shield Health During Operation

Shield health keeps acting on the Sponsor’s income and the market’s state after launch, escalating in stages:

1. If the Sponsor’s locked equity or the vault’s overall coverage falls below requirement, the Sponsor’s fee share moves into escrow and a replenishment notice is issued;
2. if not restored within the replenishment window, the market’s OI cap is reduced or the market is demoted to Watchlist;
3. if coverage breaks the hard threshold or stays impaired, the market enters ReduceOnly;
4. if the shortfall cannot be repaired, the market enters Sunset, and the Sponsor’s shares unlock only after all positions and liabilities settle.

This ladder extends SIP-5’s health-conditional fee share down to the capital layer: Sponsors are paid for keeping their market solvent, not for having launched it.

Risk Isolation per Pair

A Shield Vault may back multiple pairs, with each pair’s coverage kept isolated. For each associated pair, the vault declares a maximum underwriting capacity, and the corresponding capital is reserved for that pair. Reserved capacity is exclusive: the same capital is never counted as coverage for two pairs at once. An extreme liquidation cascade on one pair can exhaust at most that pair’s reserved capacity, leaving the protection of every other pair intact. This preserves the shield isolation per market that SIP-5 requires.

Withdrawal Restrictions

Because associated markets rely on the vault’s presence, Shield Vault capital cannot be withdrawn freely. Community depositors may request withdrawals, but capital already committed as coverage for an active market cannot simply walk away:

• withdrawals follow a notice period and caps per epoch published with the association terms;
• each withdrawal first releases the corresponding underwriting capacity, and the affected pair’s risk allowance (such as its OI headroom) is reduced in step, so no market’s limits ever assume capital that has already left;
• locked_sponsor_shares are stricter still: they cannot be withdrawn at all while their market is active.

A pair’s insurance backing therefore cannot evaporate overnight, and no withdrawal leaves a market exposed beyond what its remaining coverage supports.

A Spectrum of Shield Vaults

Because Shield Vaults choose which pairs they back, a natural spectrum will emerge:

• Curated Shield Vaults that back only rigorously selected pairs, targeting steady premium income with tightly bounded tail risk;
• Degen Shield Vaults that back a broad range of meme tokens and long tail markets, accepting higher tail risk for higher fee flow.

Both are legitimate strategies. The LP token price of each vault makes its realized performance fully transparent, and depositors choose the risk profile they want.

Associating an Existing Shield Vault

A Market Sponsor can apply to associate an existing Shield Vault with their trading pair instead of building one, subject to the vault owner’s acceptance and available capacity. The Sponsor must still meet required_sponsor_commitment with locked shares inside that vault. The Shield Vault’s community reputation then works in the pair’s favor. When a reputable, deeply funded Shield Vault backs a new trading pair, traders can reasonably expect a lower ADL frequency and better liquidity quality, and are more willing to trade the pair. Shield Vault reputation becomes a portable trust signal that new markets can borrow, and that Shield Vaults are incentivized to protect.

Scope

SIP-5B applies to the Community Vault system on StandX. It covers:

• the common vault standard: creation, multiple vaults per user, vault type selection, transparency, and closure;
• the Community Strategy Vault: LP tokens priced at NAV, owner minimum share, and the withdrawal processing window;
• the Community Reward Vault: mandatory creation at listing, sponsor and community funding, withdrawal restrictions, and bps/depth tier configuration on top of the SIP-5A rail;
• the Community Shield Vault: liquidation takeover, liquidation fee and insurance premium flow, the mandatory Sponsor commitment and locked shares, the Trading Gate, risk isolation per pair, withdrawal restrictions, and Sponsor association.

SIP-5B does not define the full permissionless market listing process, Sponsor staking, or the Oracle Grid. Those remain governed by SIP-5 and later rollout phases.

Compatibility and Future Extensions

Community Vaults run on the primitives StandX already operates: Perps margin accounting, the liquidation engine, ADL, and the SIP-5A daily maker yield rail. Reward Vaults distribute through the existing Community Maker Yield measurement, and Shield Vaults slot into the liquidation order of operations defined by SIP-5, in front of ADL. Live parameters (the owner minimum share, the withdrawal window, underwriting capacity rules, and pair association terms) are published on the platform and may be tuned by StandX operations.

The same vault standard is the capital foundation for the remaining SIP-5 modules. Future proposals may introduce fully permissionless market deployment backed by Community Vaults, markets whose roles are shared by multiple vaults, tranche structures for Strategy Vaults, vault reputation scoring, and richer Reward Vault distribution strategies. Over time, Community Vaults can become the default source of trading capital, maker budgets, and insurance capital for every Universal Market.

Conclusion

Universal Markets need capital as much as they need liquidity measurement. SIP-5A proved that maker contribution can be measured objectively and paid daily, and SIP-5B answers who supplies the capital behind the markets, spreading a load that once fell on a single Sponsor across the whole community.

Three vault types, each with economics and exit rules that match what the capital actually does: Strategy Vaults let the community back traders, Reward Vaults let Sponsors and the community fund maker yield, and Shield Vaults let the community underwrite the markets it believes in, with the Sponsor locked in first and out last.

Community capital pools into vaults. Vaults grow track records. Track records back markets. Markets pay the capital that backs them.

Universal Markets need Universal Capital. SIP-5B brings the community into the vault.