# Mechanics ### What are Shards? Shards are NFTs that represent a user’s proportional ownership of a ShardVault & its contained assets. When a ShardVault has completed initial funding, the ownership & governance rights of the assets within the vault are split into ERC-1155 NFTs: Shards. Shards come with unique metadata and imagery inspired by the underlying bluechip. Lastly, each Vault deposit is credited with one Shard and the % depends on the total number of Shards for the Vault, e.g. if total Shards created = 100 then 1 shard = 1% ownership. ### **Initialization** The protocol initializes a Vault with predetermined parameters for target NFT collection(s), number of Shards, price per Shard, borrowing and yield farming strategies. The Vault creates a fundraising pool that accepts a number of equal sized deposits matching the predetermined amount of Shards. Until the Vault is at full capacity, users can withdraw their deposit at any time. Once the Vault is at full capacity, deposits/withdrawals are disabled and the Vault acquires one or multiple NFTs from the predetermined collection(s) via an NFT marketplace. Then the Vault splits the NFT into Shards and distributes them to depositors. ### Yield Generation The ShardVault uses NFT lending protocols to borrow against the NFT and the borrowed funds are deposited into high yield strategies (see [Vendor Abstraction](/shardvaults/vendor-abstraction.md)), capturing the difference between the borrow interest rate and investment yield. The ShardVault manages risks and payments associated with the NFT loan, while automatically farming and compounding yield for our users. ### **Wind Down** ShardVaults continually generate yield for their users. In case a user would like to exit their position, there are multiple options: * Sell your Shard through NFT marketplaces * Pass a governance proposal amongst Shard holders to end the Vault and sell the bluechip NFT --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://docs.insrt.fun/shardvaults/mechanics.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.