diff --git a/contracts/vc-vault-factory/README.md b/contracts/vc-vault-factory/README.md
index 4492dd0..b7c4faf 100644
--- a/contracts/vc-vault-factory/README.md
+++ b/contracts/vc-vault-factory/README.md
@@ -27,7 +27,7 @@ Soroban smart contract that deploys and tracks **single-tenant `vc-vault` instan
 | `deploy_sponsored(deployer, owner, did_uri, salt)` | `deployer` | Deploy a vault on behalf of `owner`. The deployer signs and pays; the vault belongs to `owner` from creation. Anyone can be a deployer — no whitelist. |
 | `is_vault(vault_address)` | none | Return `true` if `vault_address` was deployed by this factory. Used by `receive_push` inside vaults to validate transfer sources. |
 
-`salt` is a `BytesN<32>` chosen by the caller. Internally the factory derives the actual deploy salt as `keccak256(user_salt ‖ owner_bytes)`, which makes vault addresses deterministic per `(owner, salt)` pair and prevents frontrunning.
+`salt` is a `BytesN<32>` chosen by the caller. Internally the factory derives the actual deploy salt as `keccak256(user_salt ‖ XDR(owner))`, which makes vault addresses deterministic per `(owner, salt)` pair and prevents frontrunning.
 
 The vault constructor called by `deploy_v2` receives `(owner, contract_admin, did_uri, factory_address)`. The factory address is stored inside each vault so it can call `is_vault` during `receive_push`.
 
@@ -59,10 +59,12 @@ Persistent entries for deployed vault addresses are extended on `set_deployed` a
 Vault addresses are deterministic and unique per `(owner, salt)` pair:
 
 ```
-deploy_salt = keccak256(user_salt || owner_address_bytes)
-vault_address = hash(factory_address || deploy_salt)
+deploy_salt   = keccak256( user_salt (32 bytes) || XDR(owner) )
+vault_address = hash( factory_address || deploy_salt )
 ```
 
+`XDR(owner)` is the canonical XDR serialization of the owner `Address` (i.e. `Address.toXDR(env)` on-chain / the equivalent ScAddress XDR encoding off-chain) — **not** its StrKey display string. A client precomputing a vault address must hash the raw XDR bytes of the owner address, not the `"G..."`/`"C..."` text.
+
 Two different owners using the same user salt get different vault addresses. The same owner using different salts also gets different addresses. This means a vault address can be pre-computed client-side before submitting a transaction.
 
 ---
diff --git a/contracts/vc-vault-factory/src/contract.rs b/contracts/vc-vault-factory/src/contract.rs
index 2733bd3..034fca6 100644
--- a/contracts/vc-vault-factory/src/contract.rs
+++ b/contracts/vc-vault-factory/src/contract.rs
@@ -1,5 +1,6 @@
 use soroban_sdk::{
-    contract, contractclient, contractimpl, Address, Bytes, BytesN, Env, IntoVal, String,
+    contract, contractclient, contractimpl, xdr::ToXdr, Address, Bytes, BytesN, Env, IntoVal,
+    String,
 };
 
 use crate::{events, storage};
@@ -32,12 +33,18 @@ impl VaultFactoryContract {
 }
 
 fn derive_salt(e: &Env, user_salt: BytesN<32>, owner: &Address) -> BytesN<32> {
-    // Salt = keccak256(user_salt || owner_bytes) — prevents frontrunning.
-    let mut owner_bytes: [u8; 56] = [0; 56];
-    owner.to_string().copy_into_slice(&mut owner_bytes);
-    let mut salt_bytes: Bytes = user_salt.into_val(e);
-    salt_bytes.extend_from_array(&owner_bytes);
-    e.crypto().keccak256(&salt_bytes).into()
+    // deploy_salt = keccak256( user_salt(32 bytes) || XDR(owner) )
+    //
+    // Mixing the owner into the salt binds the deterministic vault address to a
+    // specific owner (so a sponsored deploy lands on the same address the owner
+    // would compute, and two owners can't collide on one address). The owner is
+    // serialized via its canonical XDR form rather than to_string(): XDR is the
+    // stable wire encoding an off-chain client reproduces directly, and it
+    // matches the preimage documented in the README. to_string() is a display
+    // (StrKey) encoding and ties determinism to a fixed 56-byte assumption.
+    let mut preimage: Bytes = user_salt.into_val(e);
+    preimage.append(&owner.clone().to_xdr(e));
+    e.crypto().keccak256(&preimage).into()
 }
 
 fn deploy_vault(e: &Env, owner: &Address, did_uri: String, user_salt: BytesN<32>) -> Address {