Portfolio Allocation

The protocol's portfolio is strategically allocated to balance liquidity, yield generation, and risk management. This allocation ensures the stability of NUSD while maximizing yield for sNUSD stakers. The portfolio can be divided into three main categories:

Duration Matching Approach

A fundamental principle of the protocol is ensuring that liabilities are duration-matched with the assets it holds. This "duration match" is one of the protocol's risk-management mechanisms. The benefits are clear:

• Reduces Forced Selling: By aligning the maturity of liabilities with assets, the protocol avoids the need to sell positions at a discount during redemptions. This eliminates fire-sale risks, ensuring stability even during high withdrawal periods.
• Regulatory Compliance: Supervisors, auditors, and potential partners view a lower weighted-average maturity gap as a safer structure. This enhances the protocol's credibility, paving the way for partnerships, regulatory approvals, and increased TVL growth.
• Optimizes Capital Efficiency: With redemptions funded by maturing assets, Neutrl can maintain a leaner cash buffer and deploy more capital into productive trades—boosting net yields for sNUSD holders.

As users roll their positions from one lock to the next, the protocol re-ladders its assets - closing matured positions and reallocating capital into new positions further along the curve. In cases where inflows and outflows are not perfectly synchronized, the protocol may allocate a portion of shorter-term assets (e.g., a 6-month position) into the next tenor (e.g., a 9-month trade). This ensures continuity in the ladder while avoiding idle capital drag.

While this approach may lead to some bunching of redemptions further down the line, the protocol has mechanisms in place to mitigate this risk. Immediate liquidity from secondary markets and third-party credit lines can alleviate potential redemption queues (see Redemption section for details).

The result: higher, more sustainable yields for sNUSD holders and faster, more reliable redemptions for NUSD users.

The protocol employs a dynamic allocation strategy to adapt to changing market conditions and optimize risk-adjusted yield. Key principles include:

Crypto markets swing from fear to euphoria faster than any traditional markets. This volatility demands a nimble and adaptive allocator. Neutrl's strategy is designed to respond dynamically to changing market conditions:

• OTC Sleeve: Deal flow is highly opportunistic. In some weeks, attractive 6- or 9-month deals may surface; in others, suitable opportunities may be scarce. The protocol only deploys into positions when yield exceeds our risk-adjusted hurdle rate and aligns with the duration ladder. If no suitable deals are available, we simply wait.
• Liquid strategy: Capital is deployed only when the expected yield beats both the cash-equivalent yield-bearing rate stablecoin benchmark and the internal excess-yield target. This ensures protocol safety by preserving over-collateralization, liquidity buffers, and minimal weighted-average maturity gaps.

Because the liability curve is constantly evolving - users can roll, extend, or redeem - the allocation engine continuously rebalances. Buckets that shrink are allowed to roll off, while buckets that grow are funded by closing surplus trades. If the market offers favourable spreads, new positions may be opened further out on the curve.

The result is an allocation strategy that adapts to the protocol's liabilities in real time—remaining liquid and defensive during bearish conditions, while maximizing opportunities during bullish markets.

Example Portfolio Allocation Breakdown

Below is an example of how the protocol might allocate its portfolio under normal market conditions:

Note: The exact allocation will vary depending on market conditions, protocol growth, and liquidity needs.