🧠Reserve Strategy

SIERRA’s reserve strategy is designed to deliver a balance of yield, risk, and liquidity. Underpinning this reserve strategy is a robust risk management framework which analyzes each yield source across 10 types of risk.

Here are the core principles that guide the reserve strategy:

Maintaining Liquidity: A considerable portion of the reserves are allocated to lower yielding strategies in order to optimize for immediately liquidity, which enables the Sierra protocol to meet significant redemption requests 24/7/365. Some of these lower yielding, higher liquidity strategies include money market funds, commercial paper, AAVE & SKY.

Risk Diversification SIERRA’s portfolio of reserves are diversified across counterparties and smart contract platforms to help mitigate downside risk and create a more robust yield profile. All RWA yield sources have been rated investment-grade by third party, institutional rating agencies.

Duration & Maturity Management: SIERRA's portfolio is managed to maintain a low duration across yield sources, which reduces sensitivity to interest rate changes and allows for rapid rebalancing in response to changing market conditions or redemption requests. Additionally, there is limited maturity transformation between SIERRA's reserves and the corresponding yield sources, which helps to ensure SIERRA can always meet redemption requests as they arise.

Yield Enhancement: After accounting for liquidity, diversifying risk and managing asset and liability maturities, the reserve strategy aims to enhance overall yield generated through higher yielding sources to help boost the blended yield of the portfolio.

In order to achieve these core principles, SIERRA's reserve strategy is updated daily based on changing market conditions and results in a dynamically managed portfolio. Additionally, each yield source is monitored in real-time to identify changing characteristics which warrant reducing exposure or removing reserve assets entirely. See the page on SIERRA's Risk Framework for more information.

Who Oversees SIERRA's Reserve Strategy?

At launch of the Sierra Protocol, the reserve strategy is governed by an independent Board of Directors at the Sierra Foundation. In addition, there is an Advisory Board composed of experts in stablecoins, DeFi, traditional asset management and risk modelling to help guide setting and updating the reserve strategy. The key responsibilities of each group are:

Board of Directors:

• Holds final authority over reserve asset allocations. Reviews and approves allocation changes, new yield sources, and risk exposure limits per yield source

• Ensures alignment with legal, regulatory, and financial standards

• Maintains transparency through published governance records and decision logs

Advisory Board:

• Conducts due diligence on potential reserve yield sources, counterparties, and custodians

• Monitors trends in DeFi and traditional markets to assess yield, risk, and liquidity dynamics

• Recommends adjustments to portfolio allocations based on performance, market conditions, or macroeconomic changes

• Issues quarterly reports summarizing reserve health and strategic outlook

This dual-tiered governance model ensures that the reserve allocation behind SIERRA is driven by expert insight while being accountable to a formal decision-making structure. It is designed to balance innovation with prudence, providing users confidence that the portfolio allocation backing SIERRA is thoughtfully constructed and professionally managed.

In the future, the governance process for SIERRA's reserves may include broader participation from industry experts and SIERRA holders to better align incentives and crowdsource more expertise and insights.