Capacity Management
Dawn Vault implements TVL (Total Value Locked) caps to protect depositor returns. We prioritize quality of yield over quantity of AUM.
Why Cap TVL?
Alpha strategies have limited capacity. As more capital chases the same opportunity:
Funding rate impact increases (our short positions move the market)
Lending rate impact increases (our deposits push rates down)
Slippage on entry/exit grows
Net yield per dollar decreases
Without caps, a vault's advertised APY degrades as TVL grows — early depositors suffer as late capital dilutes returns.
Our Approach
Hard Cap
Maximum TVL enforced at the smart contract level; deposits rejected above cap
Soft Cap
Warning threshold; new deposits accepted but monitored for yield impact
Dynamic Adjustment
Caps are adjusted based on market liquidity and strategy capacity
Waitlist
When caps are reached, new depositors can join a waitlist for future capacity
Cap Sizing Methodology
TVL caps are set based on:
Market depth of target funding rate instruments
Lending pool liquidity across protocols
Observed yield degradation at various TVL levels
Position entry/exit slippage modeling
Transparency
Current TVL and cap status are displayed on the vault dashboard. When a vault approaches its cap:
Dashboard shows remaining capacity
Depositors are notified of cap proximity
Cap increases are announced in advance when justified by market conditions
Quality Over Quantity
We would rather run a $5M vault at 15% APY than a $50M vault at 6% APY. Our fee revenue is optimized by delivering superior risk-adjusted returns, not by maximizing AUM.
This philosophy aligns our incentives with depositors — we only grow when we can maintain performance quality.
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