Reserve

The Reserve is a pool of protocol-owned capital that sits between Ballast and Hull principal in the shortfall order. It exists to absorb short stretches of negative funding without those stretches showing up as Ballast NAV whipsaw. It targets 2 percent of TVL and is funded only from the protocol fee.

Testnet, unaudited

Vessel is experimental software in testnet. The Reserve parameters on this page are litepaper design values. The public repository contains no contracts as of 2026-08-29, so contract-level behaviour (storage, accounting units, read functions) is unverified.

Target

The Reserve target is 2 percent of TVL. It is a target, not a floor: the Reserve can be anywhere from zero to target, and it moves in only two ways, inflow from the fee split and outflow from the shortfall waterfall.

The litepaper does not state which balance the 2 percent is measured against at any given moment (gross book, Hull plus Ballast NAV, or TVL including the idle buffer). That denominator is not specified in the sources used for this page UNVERIFIED — PENDING GATE-0.

Funding

Every accrual epoch, the protocol fee is 10 percent of gross positive yield, fee = 10% × max(G, 0). That fee is split:

Reserve state	Fee destination
Below target	half of the fee to the Reserve, half to the treasury
At target	all of the fee to the treasury

Two consequences follow from this shape.

• The Reserve only grows in epochs where G > 0. In a negative-funding epoch there is no fee and no inflow.
• Refill is slow by construction. The inflow is 5 percent of gross positive yield, so a Reserve drained to zero rebuilds only as fast as positive funding accrues.

Whether the split is exactly half at the epoch where the Reserve crosses target, or is capped so the Reserve never exceeds 2 percent, is not specified in the litepaper UNVERIFIED — PENDING GATE-0.

Role in the waterfall

Vessel accrues daily with a continuous NAV. In each epoch the gross funding result G is allocated in order:

1. Protocol fee, 10% × max(G, 0), split as above.
2. Hull accrual, A_H = r_H × H × Δt, where r_H is a contract parameter.
3. Residual to Ballast.

When G is negative, or when G is positive but smaller than the Hull accrual owed, there is a shortfall. The shortfall ordering is:

1. Ballast NAV absorbs first.
2. The Reserve drains next.
3. Only then is Hull principal impaired. That is a credit event.

The Reserve's job is specifically the transient case. Funding on perp venues inverts for hours or days at a time; without a buffer, every such window would print as a Ballast drawdown followed by a recovery, and Ballast NAV would whipsaw around the true trend. With a Reserve, a negative epoch can be covered from protocol capital instead of from Ballast, and Ballast NAV is smoother for it.

Note the ordering carefully. The Reserve drains after Ballast, not before it. On the face of the litepaper ordering, Ballast is the first-loss position in every shortfall and the Reserve is second-loss. The smoothing effect comes from the Reserve standing between Ballast and Hull so that Ballast can be worked through without the loss reaching Hull principal. Whether the engine draws on the Reserve before Ballast NAV is fully consumed, or only after Ballast is exhausted, is not specified in the litepaper beyond the stated order UNVERIFIED — PENDING GATE-0.

The conservation invariant holds every epoch and is fuzzed in the engine:

ΔNAV_Hull + ΔNAV_Ballast + ΔReserve + fees = G

Any Reserve movement is one term of that equation, so a Reserve drain is always matched by a Ballast or Hull change or by G itself. There is no path by which value enters or leaves the Reserve outside the waterfall.

What the Reserve is not

The Reserve is not insurance. It has no external backer, no obligation to pay, and no size beyond what past fees have put into it.

The Reserve is not a guarantee fund for Hull. Hull principal is protected by two layers, Ballast NAV and then the Reserve, and both are finite. A sustained negative-funding regime long enough to consume the subordination buffer and the full Reserve reaches Hull principal. The Hull page states this as a credit event; the Reserve does not change that.

The Reserve is not a yield source. It does not accrue to Hull or Ballast holders. It is protocol capital held against the shortfall order.

In Phase 3, post-audit, vUSD is described as overcollateralized by Ballast plus Reserve. That is a statement about vUSD backing, not a change in the Reserve's role in the tranche waterfall.

Behaviour at and below target

At target. The fee split sends the full 10 percent fee to the treasury. The Reserve holds at 2 percent of TVL. Because the target is a fraction of TVL, deposits that raise TVL push the Reserve below target in ratio terms, and the split reopens until it catches up.

Below target after a drain. Each subsequent positive epoch sends half of the fee to the Reserve. There is no accelerated refill, no treasury top-up, and no mechanism to fund the Reserve from Ballast or Hull. Refill comes only from future fees.

At zero. The Reserve contributes nothing to the next shortfall. Losses beyond Ballast NAV reach Hull principal directly. The protocol has no stated mechanism to pause issuance or raise the subordination floor in response to an empty Reserve; if such logic exists in the deployed contracts it is not documented in the sources used for this page UNVERIFIED — PENDING GATE-0.

What is not verified

The following are gaps in the public record as of 2026-08-29, not omissions on this page.

• Whether the Reserve is a separate contract or an accounting balance inside the engine.
• The asset the Reserve is denominated in and whether it is held idle or deployed.
• Whether the 2 percent target and the 50 percent split are governable parameters, and by whom.
• Any on-chain read function that exposes the current Reserve balance.
• The exact interaction between the Reserve and the deployed hedge venue during a negative-funding epoch. The deployed contracts currently hedge against SimVenue SIMVENUE — SIMULATED, a simulated venue with an owner-settable funding rate, so negative funding on testnet is an operator input rather than a market outcome.

When the contracts are published, this page will be updated with the storage layout and the read path.