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When LP capital enters or exits a vault, position sizes must scale proportionally so existing LPs aren’t exposed to changed leverage. This is the mechanic that distinguishes a proper LP-funded vault from a copy-trading platform.

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The leverage drift problem

Example. A manager trades 400Knotionalon400K notional on 1M AUM (0.4× exposure). An LP withdraws 500K→AUMisnow500K → AUM is now 500K but the same $400K position remains → effective exposure jumps to 0.8×. Remaining LPs are suddenly at 2× the leverage they signed up for. This is a system error, not a feature.
The reverse also matters: if an LP deposits 500K,AUMrisesto500K, AUM rises to 1.5M but the same $400K position now represents only 0.27× — the new LP is under-invested versus what they expected. Solution: positions rebalance atomically with capital changes.

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Rebalancing modes

The manager picks the mode at vault creation:
ModeBehaviorBest for
Auto-immediate (default)Rebalance instantly on every LP entry/exitTight risk control, short-horizon strategies
Scheduled 4hAggregate deposits/withdrawals; rebalance every 4 hoursSwing strategies, reduced execution friction
Scheduled 24hRebalance daily at a fixed timeLong-horizon, low-frequency strategies

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Technical requirements

Atomic

Either all positions rescale or none — no partial rebalance.

Audited on-chain

Full audit log with timestamp, pre/post sizing, and NAV reference.
Failsafe. If rebalancing fails (illiquid market, exchange downtime, partial fill), the vault pauses new deposits, the manager is alerted, and manual review is required before resuming.

LP deposits & withdrawals

How capital enters and exits, with rebalancing in context.