---
description: >-
  Every Paragon swap pays a base AMM fee of 0.30%. This doesn’t just reward LPs
  — it also builds protocol resilience through Protocol-Owned Liquidity (POL)
  held by the Treasury Vault.
---

# Protocol-Owned Liquidity (Treasury Vault)

### Fee distribution (base AMM fee)

* **0.25%** → **Liquidity Providers (LPs)** of the pool that executed the trade
* **0.05%** → **Protocol** (Treasury Vault) for **XPGN buybacks** and long-term liquidity

> The **Treasury Vault** uses its share to acquire XPGN and form protocol-owned LP positions (POL), strengthening depth and reducing reliance on mercenary liquidity.

### Flow surplus (when using Flow / Shield mode)

When trades are settled via **Paragon Flow** (intents + batching), the solver may beat the user’s `minOut`. The extra output is **surplus** and is **split independently** of the base fee:

* **60%** → Trader (instant cashback)
* **30%** → LPs of the exact pools used (Flow LP rebates)
* **10%** → stXPGN / veFlow lockers (execution yield)

_(DAO-governed option: a small protocol skim from surplus, e.g., 0–5%. **Testnet:** 0% skim.)_

> **Important:** POL is funded from the **0.05% base fee**, not from trader rebates. Surplus sharing is additive and user-aligned.

***

### Why Protocol-Owned Liquidity matters

* **Deflationary support for XPGN.** The vault buys XPGN with fee revenue, creating structural demand.
* **Deep, sticky liquidity.** POL anchors the book so swaps stay efficient even in volatile markets.
* **Downturn resilience.** The protocol is less exposed if external LPs scale down.

As volume scales, the **Treasury Vault flywheel** compounds: more fees → more XPGN buybacks → deeper POL → better execution → more volume.

***

### Treasury Vault: dual mandate

#### 1) Buyback & Liquidity Formation

* Accumulates fee revenue (the 0.05% slice)
* Periodically buys XPGN and pairs it (e.g., with stablecoins) to mint **POL LP tokens**
* LP tokens are held by the protocol (time-locked / governed)

#### 2) Shield Fund (Insurance Layer)

* Maintains a reserve for **Paragon Shield** initiatives (MEV loss coverage experiments, slippage-band refunds, incident response)
* Parameters and triggers are DAO-governed; testnet uses capped pilots only

***

### Operations & transparency

* **Non-custodial trading:** Users always self-custody. The Treasury Vault only manages **protocol-owned** assets.
* **Programmatic policies:** Buyback cadence, target LP mixes (e.g., XPGN/USDT, XPGN/BNB), and Shield allocations are set on-chain by governance.
* **Timelocks & multisig:** Changes flow through timelocked governance; addresses are published in the **Deployments** page.
* **Reporting:** A dashboard will show fee inflows, buybacks executed, POL positions, and Shield balances.

***

### Testnet parameters (current)

* Base fee: **0.30%** (0.25% LPs / 0.05% Treasury Vault)
* Flow surplus split: **60% trader / 30% LPs / 10% lockers**
* Surplus protocol skim: **0% (disabled on testnet)**
* POL actions: simulated / small-scale to validate flows

***

### FAQ

**Does POL take anything away from LPs?**\
No. LPs still receive **0.25%** from the base fee **plus** Flow LP rebates when applicable.

**Does the protocol dump XPGN?**\
No. The default policy is **net-buy** XPGN and pair it to create POL. Rebalance logic (e.g., target weights) is DAO-governed.

**How does Shield use the Treasury?**\
A small, governed allocation funds pilot protections (e.g., slippage band credits). Any policy that spends funds is proposal-gated and transparent.

**What if Flow finds no surplus?**\
The trade still executes at or above `minOut` (or reverts). Base fees apply as usual.
