Coverage and limits
Coverage measures Junior’s fraction of combined tranche value. The minimum coverage rule maintains a first-loss cushion for Senior. It is checked after the relevant action, so an action can fail even when the vault meets the rule beforehand.
Define coverage
Coverage = J / (S + J)Here S and J are the applicable tranche values. The precise action also uses the program’s valuation rules. A floor of 20% is an illustrative setting, not a universal default promised by these docs.
Senior deposits thin the cushion
Adding Senior increases the denominator without adding Junior. Ignoring valuation bounds and rounding, the maximum extra Senior for a minimum fraction c is:
Maximum Senior addition = J / c − (S + J)At S = 70,000, J = 30,000, c = 20%, the maximum is 50,000 USDC. The resulting values are 120,000 Senior and 30,000 Junior: coverage is exactly 20%.
An actual transaction can be limited further by the vault cap, minimum deposit, valuation or state.
Junior withdrawals thin the cushion
Removing Junior reduces both Junior and the total. Funding must leave enough Junior for the floor. In a simplified calculation:
Maximum Junior removal = (J − c × (S + J)) / (1 − c)For the same 70,000 / 30,000 example, at most 12,500 can leave. The remaining 17,500 Junior backs a total of 87,500, keeping 20% coverage.
If current coverage is already at the floor, an eligible Junior request may wait even when there is idle cash. More Junior capital or Senior outflows can improve coverage. The passage of time alone does not do so.
Other limits
A vault can have an upper coverage limit for Junior deposits. Position caps and maximum weights constrain allocations. Idle requirements protect a minimum cash balance. A Senior outflow limit can constrain funding over its window. These rules have different purposes and should not be collapsed into a single “withdrawal limit.”
Some configuration changes have a delay. Supported reductions can be immediate. Governance explains the distinction.
Investment implications
Check the current ratio and the selected vault’s conditions before choosing Junior. A quoted notice period does not override the coverage floor. Also distinguish contract-enforced settings from the separate limit engine, which reviews a strategy using best-practice defaults.