# Yield Generation & Accrual

## Yield Sources

SIERRA generates yield through its reserve assets deployed into a diversified portfolio of RWA- and DeFi-backed yield sources. The yield earned by SIERRA holders is the blended rate earned across the portfolio of reserve assets. Eligible yield sources for allocation of SIERRA's reserves include:

**RWA-backed vaults:**

* U.S. Treasury Money Market Funds (MMFs)
* Investment-grade Commercial Paper (CP)
* AAA-Rated Collateralized Loan Obligations (CLOs)

**DeFi-backed vaults:**

* Overcollateralized Lending - [Morpho](https://app.morpho.org/ethereum/earn) (exclusively in partnership with [Gauntlet](https://www.gauntlet.xyz/) as a curator)

More yield sources will be gradually added and each yield source is subjected to an assessment via Sierra's [Risk Framework](/reserves-management/risk-framework.md).

## Current APY

The Current APY is an annualised interest rate that is a weighted average of the expected returns on the underlying portfolio of reserve assets. The underlying reserves of SIERRA are dynamically-managed and reallocated daily, so the Current APY for SIERRA changes daily as well.  

The Realized APY of SIERRA is variable and depends on the performance of the assets backing the reserves, which fluctuate with changing market conditions. For example, the lending rate earned on deposits in AAVE or basis yield on Ethena's sUSDe may change day to day, which will cause the Realized APY to differ slightly from the Current APY.

**Here is an illustration of how this will work in practice with a sample reserves portfolio:**

| U.S. Treasury MMFs | 30%      | 4.5%      |
| ------------------ | -------- | --------- |
| Commercial Paper   | 15%      | 5.5%      |
| DeFi Yield         | 55%      | 10.0%     |
| **Current APY**    | **100%** | **7.68%** |

{% hint style="success" %}
Learn more about allocation of SIERRA's reserves using the Transparency Dashboard.
{% endhint %}

## Yield Accrual

SIERRA uses an exchange rate that increases (or decreases) as the value of the reserve assets increase (or decrease), as opposed to a rebasing method. As a result, a user's token balance of SIERRA always remains fixed unless they buy, sell, mint, redeem or transfer SIERRA tokens. This means that yield accrual is reflected as the difference between the current value of SIERRA relative to the acquisition price a user paid. 


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