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Portfolio Economics

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Capital buckets

At a business level, the vault can be viewed as four capital buckets:
  1. liquid reserve
  2. core carry
  3. canary risk
  4. exotic upside

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Why this matters financially

Each bucket contributes differently to portfolio economics.

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1. Liquid reserve

Represented by:
  • cash left in the vault
  • the Drift sleeve
Financial role:
  • supports withdrawals
  • reduces forced unwinds
  • lowers operational risk
Tradeoff:
  • too much reserve lowers blended APY

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2. Core carry

Represented mainly by Kamino. Financial role:
  • drives most of the expected net return
  • provides the main source of APY uplift over idle cash
Tradeoff:
  • stronger dependence on protocol health and spread conditions

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3. Canary risk

Represented by MarginFi. Financial role:
  • optional incremental return
  • limited exposure to protect the whole vault
Tradeoff:
  • higher operational and risk penalty

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4. Exotic upside

Represented by Perena and future RWA sleeves. Financial role:
  • differentiated return sources
  • potential decorrelation from standard lending carry
Tradeoff:
  • slower liquidity
  • greater valuation and operational complexity

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Blended yield logic

The user does not buy a single strategy. They buy:
  • a weighted portfolio of sleeves
  • with explicit reserve protection
  • and an optimization layer that prefers positive risk-adjusted scores
In the current implementation, the key user-facing financial metrics are:
  • expectedBlendedApyBps
  • riskBudgetUsageBps
  • reserveBps
In simplified notation: 
portfolioGrossReturn ≈ sum_i (w_i * grossReturn_i)

portfolioNetReturn ≈ sum_i (w_i * netReturn_i) - cashDrag
Where: 
cashDrag ≈ reserveWeight * reserveOpportunityCost
         + idleCashWeight * foregonePortfolioReturn
This is one of the central economic tradeoffs of the product:
  • more reserve usually improves withdrawal quality and operational safety
  • less reserve usually improves headline APY

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Risk budget as a product feature

Most vaults market only APY. This product can also market:
  • maximum exposure per protocol
  • maximum exposure per sleeve
  • explicit exotic limit
  • explicit canary limit
  • dynamic reserve adjustments
That is commercially useful because treasury operators care about downside governance as much as upside.

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Important implementation nuance

The current solver can intentionally leave some capital unallocated after reserve and caps are applied. Business interpretation:
  • safer portfolio behavior
  • lower tail risk during uncertain conditions
  • possible APY drag when the opportunity set is capped
This is not necessarily a bug. It can be part of the product thesis for treasury-grade capital.

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Portfolio construction summary

A useful business abstraction is: 
Vault Return
  = Core Carry
  + Liquidity Sleeve
  + Optional Canary Contribution
  + Optional Exotic Contribution
  - Reserve Cost
  - Friction Cost
  - Cash Drag
That framing is often easier to explain to judges, investors, and treasury operators than the raw implementation details.