The Delta-Neutral Engine
The engine is the part of Vessel that earns. It holds an asset in spot, shorts the same notional on a perpetual venue, and collects the funding rate that shorts are paid when the market pays for leverage. Price moves cancel between the two legs. What remains is funding, positive or negative, which the tranches then divide.
This page describes the design as stated in the litepaper. The contracts are not yet published: the public repository contains a README and a license and nothing else as of 2026-08-29. Where a detail depends on code that cannot be read, this page says so rather than filling it in.
Vessel is experimental software on Monad testnet. Nothing on this page has been through an external audit. The hedge venue today is a simulation, not a live exchange. See the venue section below.
Capital structure
The engine runs at a leverage parameter λ. At launch λ ≤ 2. Each dollar of TVL splits three ways:
| Component | Formula | At λ = 2 |
|---|---|---|
| Spot position | λ / (1 + λ) | 66.7% |
| Short-leg margin | 1 / (1 + λ) | 33.3% |
| Hedged notional | λ / (1 + λ) | 66.7% |
The spot fraction and the hedged notional are the same number by construction. Every dollar of spot is matched by a dollar of short notional, and the remaining 1 / (1 + λ) sits on the perp venue as margin backing that short.
Alongside this split, the engine holds a 10% idle USDC buffer. The buffer is unhedged. It does not carry price exposure because it is stablecoin, and it exists to service margin rather than to earn.
The litepaper gives the split per dollar of TVL and the buffer as a separate 10% figure. How the two are reconciled in the deployed contract (whether the 66.7 / 33.3 split applies to TVL net of the buffer, or the buffer is carved from the margin leg) is not stated in any published source UNVERIFIED — PENDING GATE-0.
Delta discipline
Net delta is kept within 1% of gross notional. Gross notional is the size of the spot leg plus the size of the short leg; net delta is the difference between them. When the two drift apart, from a partial fill, a funding payment, or a change in the spot balance, the engine is no longer neutral and carries directional risk it is not paid for.
Rebalancing runs on two triggers:
- Band breach. Net delta exceeds 1% of gross notional. The engine resizes the short (or the spot) to bring it back inside the band.
- Timer. Four hours since the last rebalance, regardless of where delta sits.
The timer catches slow drift that never crosses the band. The band catches fast moves. Both are executed by keepers, who act permissionlessly; the engine does not depend on a privileged operator to stay neutral.
How the 1% band and the 4-hour interval are stored (immutable, owner-settable, or governed) is unverified until the contracts are published UNVERIFIED — PENDING GATE-0.
Liquidation safety
A delta-neutral book fails in one specific way: the short leg gets liquidated during a sharp rally, leaving the vault long and unhedged at the worst moment. The engine is sized to keep that from happening.
- The short-leg liquidation price sits at least 40% above the current mark. At
λ ≤ 2, the margin fraction is what puts the liquidation price that far away. - Margin maintenance draws on the 10% idle USDC buffer. When the short loses money because spot rallied, the buffer tops up margin before the position approaches its liquidation threshold.
- A buffer breach triggers automatic de-risking. The engine reduces the position. It never adds leverage to defend a losing short.
The last rule is the one that matters. A system that responds to margin pressure by borrowing more converts a bounded loss into an unbounded one. Vessel's response to pressure is to shrink.
Keepers execute margin top-ups alongside rebalancing and funding harvest. The exact de-risking sequence (which leg is reduced first, in what size, and at what buffer level the trigger fires) is not specified in the litepaper UNVERIFIED — PENDING GATE-0.
The venue abstraction
The engine does not know which exchange it trades on. It talks to a single interface, IVenue, which exposes what the engine needs: open and resize a short, post and withdraw margin, read the mark, read and collect funding. Everything venue-specific lives behind that boundary.
Today the venue is SimVenue SIMVENUE — SIMULATED. SimVenue is a simulated perpetual venue with an owner-settable funding rate. It exists so the engine, the tranches, and the accrual waterfall can be exercised on testnet without depending on a live order book. It is not a market. The funding it pays is a parameter, set by the deployer, not a price discovered by traders.
The consequences are worth stating plainly:
- Any yield the testnet deployment shows is produced by a number someone typed in. It says nothing about what a live venue would pay.
- Liquidation, slippage, and partial fills are only as realistic as SimVenue makes them. Whether SimVenue models any of these is unverified UNVERIFIED — PENDING GATE-0.
- The
IVenueinterface itself (function names, signatures, and return types) is unpublished UNVERIFIED — PENDING GATE-0. The description above is the litepaper's account of what the engine needs, not a reading of the code.
Replacing SimVenue with Perpl is an adapter change, not a rewrite: a new contract implements IVenue against Perpl's exchange, and the engine is pointed at it. The engine logic, the tranche accounting, and the waterfall do not change. Perpl integration status is tracked on the Perpl integration page; in short, Perpl is next, and nothing against Perpl is wired today.
"Adapter change, not a rewrite" describes the intended architecture. Until the contracts are public, the claim cannot be checked against code. It should be read as design intent.
What the engine does not do
- It does not set the Hull rate. That is a contract parameter derived from a 30-day EWMA of net funding, with a haircut and a cap; see the tranche pages.
- It does not decide who absorbs a loss. The engine reports gross yield
Gper epoch; the waterfall divides it. - It does not hold a privileged mint path. No Vessel contract can create vUSD, or anything else, outside the delta-neutral book.
Summary of parameters
| Parameter | Value | Source |
|---|---|---|
| Launch leverage | λ ≤ 2 | litepaper |
| Spot / margin / hedged notional | 66.7% / 33.3% / 66.7% | litepaper |
| Idle USDC buffer | 10%, unhedged | litepaper |
| Delta band | net delta within 1% of gross notional | litepaper |
| Rebalance timer | 4 hours | litepaper |
| Short-leg liquidation distance | ≥ 40% above mark | litepaper |
| Buffer breach response | de-risk, never add leverage | litepaper |
| Hedge venue today | SimVenue, owner-settable funding | team brief |
| Contract addresses | none published | repository |