> For the complete documentation index, see [llms.txt](https://docs.sierra.money/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.sierra.money/building-with-sierra/reserve-management-strategy.md). # Reserve Management Strategy The objective of every Vault or LVT's Reserve Management Strategy is to create a portfolio of yield sources based on the target risk, liquidity and yield profile. This process results in a subset of [Available Yield Sources](/building-with-sierra/available-yield-sources.md) being whitelisted for a Vault or LVT. The entire underwriting and whitelisting process is conducted by Sierra's [Advisory Council](/building-with-sierra/advisory-council.md). See SIERRA's [Reserve Management Strategy](/our-flagship-lvt-sierra/reserve-strategy.md) for the flagship implementation. ### Guiding Principles The Reserve Management Strategy for each Vault or LVT issued by Sierra is built around the same four principles: * **Maintaining Liquidity -** A portion of reserves is allocated to lower-yielding, highly liquid Yield Sources, such as money market funds and commercial paper-backed vaults, to help fulfill redemption requests * **Risk Diversification -** Reserves are spread across Yield Sources, counterparties, and smart contract platforms to reduce concentration and tail risk, producing a more resilient blended return * **Duration & Maturity Management -** Reserves are matched against expected redemption patterns to limit maturity transformation and interest rate sensitivity. Vaults targeting a longer-duration profile intentionally extend this exposure in exchange for enhanced yield * **Yield Enhancement -** After accounting for liquidity, diversification, and duration matching, remaining reserves are allocated toward Yield Sources that boost the blended return of the portfolio, within the limits set by a Vault or LVT's reserve management strategy ### How a Reserve Management Strategy is Built Sierra's [Advisory Council](/building-with-sierra/advisory-council.md) collaborates with issuing partners to establish their respective reserve management strategy by: 1. **Scoping the Product Goals -** Based on the issuing partners goals and requirements, we define the target risk, liquidity and yield profile 2. **Yield Source Underwriting and Selection -** We review all [Available Yield Sources](/building-with-sierra/available-yield-sources.md) to create a portfolio that meets the issuing partner's target profile. Additionally, we underwrite and integrate new yield sources demanded by issuing partners that are not yet available using the [Risk Framework](/building-with-sierra/risk-framework.md) 3. **Setting Maximum Portfolio Allocations -** Using the output of the Risk Framework for each yield source, combined with the issuing partner's target profile for the Vault or LVT, we adjust the maximum portfolio allocation parameters as needed 4. **Portfolio Finalization -** Using the output from yield source selection and maximum portfolio allocations, we establish the portfolio weightings for all yield sources 5. **Yield Source Whitelisting -** In Fireblocks, we must whitelist the contract addresses and setting transaction policies for all applicable OpenTrade vaults corresponding to the underlying yield sources 6. **Dynamic Rebalancing -** As new capital inflows enter the Vault or LVT, combined with yield generated by the reserves, reserves are rebalanced across whitelisted yield sources based on the portfolio weights established in Step 4 7. **Period Reviews & Portfolio Updates -** We continually monitor all Available Yield Sources for risk profile changes due to market conditions or other factors. Additionally, at the request of issuing partners we can add or remove whitelisted yield sources. We can also adjust portfolio weightings as well --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. 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