# How It Works

YieldFi vaults issue **ERC-20 vault tokens** that represent a pro-rata claim on a vault’s underlying assets and strategy performance. The vault’s value is tracked through a **Net Asset Value (NAV)** that is updated periodically as the strategy generates profits or losses, net of any applicable fees. Users interact with vaults through two core flows: Deposit (instantaneous) and Withdrawals (with a queue).

### Deposit (Instantaneous)

When you deposit the supported asset into a YieldFi vault, the vault **mints ERC-20 vault tokens** to your wallet, representing your pro-rata claim on the vault. Mint pricing is defined by a vault **feature flag** such that deposit price is set at:

* **Current NAV**, or
* **Higher of Current NAV vs end of epoch NAV**

The second option is designed to prevent anyone from depositing and withdrawing between NAV updates.

### Redemption (WithdrawQueue → Payout)

To redeem, you submit a request that enters the **WithdrawQueue**. You may **cancel** the request any time before it is processed. Once processed, the vault burns the redeemed vault tokens and transfers the underlying assets to the specified **receiver wallet address**. Redemption pricing is defined by a vault **feature flag** such that redemption price is set at:

* **Current NAV**, or
* **Lower of Current NAV vs end of epoch NAV**

The second option is designed to prevent bank run in case of loss in the vault strategy.

### Yield Distribution

Yield is distributed by updating the vault NAV to reflect strategy performance, net of any **management fees** (if applicable). When performance is positive and the **new NAV is higher** than the High Water Mark, the increase is not applied as a single step. Instead, the NAV update is **vested over a defined epoch period**, which reduces the ability for anyone to front-run a known NAV jump by depositing right before it or redeeming right after it.

When performance is negative and the **new NAV is lower** than the current NAV, the NAV update is applied **instantly**, ensuring losses are reflected immediately. Even in this loss scenario, front-running is mitigated because redemptions can be configured to process at the **lower of current NAV or end NAV**, which prevents users from escaping losses by withdrawing at a temporarily higher NAV before the end-of-epoch accounting is finalized.

### Compliance Gating (Greenlist)

A vault may require a **Greenlist** from day one. When enabled, any user who wants to mint or redeem must complete **KYC/KYB** and **AML checks** to satisfy regulatory compliance requirements for that specific product.

### Redemption SLAs & Fees

Each vault’s expected **redemption SLA** (processing time) and all applicable **fees** are disclosed on the vault’s factsheet at [**www.yield.fi/vaults**](http://www.yield.fi/vaults), so users can evaluate liquidity and costs before depositing.