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This page walks through a single illustrative trade to show how the vault’s capital is put to work and how the collateral behaves along the way. It follows a copper shipment, the most common trade type at launch.
The numbers below are illustrative and rounded for clarity. Real trades vary in size, commodity, tenor, and structure; see Collateral & Transaction Structure for the full framework.

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The setup

A copper trader has lined up two contracts at the same time:
  • A purchase contract to buy a shipment of LME Grade A copper cathodes at a discount to the market price: say $10.0M.
  • An onward sale contract to sell that same shipment to an end buyer at a fixed price: say $11.0M.
Both contracts are signed before any capital moves. The trader needs short-term working capital to fund the purchase, and this is what the vault finances. Because the purchase and sale prices are both locked in, the trade is not expected to carry material open exposure to the copper price, although basis, counterparty, and timing risk may still arise. The vault deploys $10.0M to finance the purchase. That $10.0M is the loan we follow below.

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Step by step

1

Escrow funding

The $10.0M is placed into a segregated escrow account at a global tier-one bank. At this point the loan is backed 1:1 by cash.Collateral state: escrowed cash · $10.0M · fully cash-covered.
2

Shipment and inspection

The copper ships on a free-on-board basis. When it reaches the delivery point, an independent, internationally recognized inspection agency (such as SGS) verifies its quality against the LME Grade A specification (an assay) and its quantity (a weighbridge certificate). These certificates are binding on all parties.Collateral state: escrowed cash · $10.0M; funds have not moved yet.
3

Payment release and title transfer

Once the full documentary package is satisfied (invoice, certificate of origin, permits, the inspection certificates, and transport documents), the escrow releases the $10.0M to the seller and title to the copper passes to the fund.For a short window (hours in this illustrative trade, though depending on the transaction it can run to days or weeks), the position faces the physical copper. Valued at the contracted sale price of $11.0M against a $10.0M loan, the commodity is worth more than the loan.Collateral state: physical copper · ~$11.0M · LTV ~91%.
4

Onward sale and settlement

In this illustrative trade, settlement of both legs occurs on the same day: the end buyer pays the contracted $11.0M and title passes to them. The loan principal plus the trade margin returns to the segregated account.Collateral state: cash again · loan repaid.
5

Redeployment

The proceeds roll into the next transaction in the program. A copper program typically runs as a rolling 12-month schedule of repeat deliveries, and over the course of the program a cash buffer can build up in the controlled account, adding a further layer of coverage.Collateral state: escrowed cash, ready for the next trade.

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Where the collateral sits over time

The key thing to see from the walkthrough is that the position faces the physical commodity only for a short window between paying the seller and receiving the buyer’s funds: hours in this example, though it can extend to days or weeks. For the rest of the trade it is cash. This is why the vault reports the collateral type per loan: whether a position currently faces escrowed cash or the physical commodity. See Transparency.

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If a counterparty fails to perform

Suppose the end buyer fails to pay. Because settlement happens at the delivery point, the failure is identified quickly, and the fund still holds title to the copper, bought at a discount and so worth more than the $10.0M loan. It can be sold to another buyer to recover principal, although recovery timing and value depend on finding a replacement buyer and completing the sale. Where the counterparty posted a performance bond, that bond is also retained. For the commodity-specific risk factors, see Commodity Yield risks.