Keyspace uses the same key derivation process as the official wallet. Your keys and coins are fully compatible.
The main key is derived from the entropy using 2048 rounds of PBKDF2 with the string "mnemonic" as a salt, 64 byte keys and SHA-512 as a pseudorandom function. Main keys are stored using Keychain Services.
Child keys are derived from the main key as specified in EIPs 2333 and 2334. Basically, each child key at index
i has the path
12381/8444/0/i. Non-observer keys have the path
12381/8444/1/i but these are not currently used.
Please note that keys are IETF BLS version 2 keys which are not compatible with the optional changes introduced in version 4.