# Liquidity Risk

Ledgity is designed to provide yield while maintaining **reliable withdrawal availability**.\
To achieve this, the protocol avoids the liquidity mismatch that commonly occurs when long-duration assets are combined with on-chain withdrawal expectations.

Liquidity risk is managed through **allocation structure**, **repayment scheduling**, and **on-chain liquidity buffering**.

***

#### Liquidity Model

Each vault uses a **three-layer liquidity design**:

| Layer                                                      | Purpose                                                       | Availability                  |
| ---------------------------------------------------------- | ------------------------------------------------------------- | ----------------------------- |
| **On-chain Liquidity Buffer** (\~5%)                       | Supports everyday withdrawals                                 | **Instant**                   |
| **Short-Duration RWA Repayments** (\~80%)                  | Provides ongoing liquidity through recurring repayment cycles | **\~24–72 hours**             |
| **Coordinated Liquidity Schedule** (for large withdrawals) | Ensures portfolio stability during exceptional outflows       | **Case-by-case coordination** |

This structure ensures that **day-to-day withdrawals are seamless**, while maintaining portfolio health over time.

***

#### No Duration Mismatch

Only **short-duration and recurring cash-flow instruments** are used in the RWA allocation.\
This prevents the common failure mode in RWA yield products where users expect **daily liquidity** but the underlying assets repay over **months or years**.

Ledgity does **not** allocate to:

* Real estate development loans
* Multi-year credit instruments
* Long-term fixed income requiring mark-to-market liquidation

By matching asset duration with withdrawal patterns, **withdrawal queues and redemption freezes are avoided**.

***

#### On-Chain PPS Reflection

Yield is not distributed manually or via rebase.\
Instead, **vault performance increases PPS (Price Per Share)** continuously.

This means that:

* Withdrawals do not require selling yield-bearing receipts
* There is **no incentive to exit early**
* Yield is always fully accounted for

This model stabilizes behavior during periods of market stress.

***

#### Large Withdrawals

Withdrawals that exceed the available liquidity buffer and current repayment cycle are still honored, but require coordinated scheduling to avoid unnecessary forced liquidation.

This ensures:

* Portfolio integrity
* No panic selling of underlying assets
* Fair treatment across depositors

Users remain informed throughout the process.

***

#### Risk Controls & Monitoring

Liquidity is monitored continuously across:

* RWA repayment calendar
* Liquidity buffer levels
* New deposit/withdrawal flows
* Market conditions relevant to RWA instruments

The Council can adjust liquidity allocation parameters through governance if required.


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