> ## Documentation Index
> Fetch the complete documentation index at: https://pessoal-86816071.mintlify.site/llms.txt
> Use this file to discover all available pages before exploring further.

# Portfolio Economics

> How the vault creates depositor value through sleeves, reserve policy, risk budgets, and blended yield.

# Portfolio Economics

## 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`

## Why this matters financially

Each bucket contributes differently to portfolio economics.

### 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

### 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

### 3. Canary risk

Represented by `MarginFi`.

Financial role:

* optional incremental return
* limited exposure to protect the whole vault

Tradeoff:

* higher operational and risk penalty

### 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

## 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:

```text theme={null}
portfolioGrossReturn ≈ sum_i (w_i * grossReturn_i)

portfolioNetReturn ≈ sum_i (w_i * netReturn_i) - cashDrag
```

Where:

```text theme={null}
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

## 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.

## 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.

## Portfolio construction summary

A useful business abstraction is:

```text theme={null}
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.