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A vToken is the pool’s share mint (classic SPL Token). Supplying 100 USDC mints vUSDC. Redeeming burns vUSDC for USDC at the current rate.
Empty pool: 1:1. The first deposit locks 1,000 shares that nobody can redeem, which protects the rate from being manipulated while the pool is tiny. Interest does not mint extra vTokens. The same shares become worth more underlying. vTokens live in the wallet. They are Earn receipts, not margin collateral. To use supplied funds as collateral, redeem first, then deposit the underlying. Redeems are paid from available cash. When utilization is very high, a large redeem may have to wait for repayments or new supply.