# Strategies and Allocation

## Overview of Yield Aggregator Components

The yield aggregator is comprised of a set of smart contracts and components that work together to manage risk, allocate funds and optimise yields.

Here is an overview of some of the components: 

| Component        | Role                                                                                                                                                                                                                                                                                           |
| ---------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| Strategy Manager | The Strategy Manager is a smart contract that sits above individual strategies and is responsible for determining optimal allocation to the various strategies, executing allocations, monitoring performance, rebalancing and managing risk.                                                  |
| Strategies       | Strategies themselves are individual vault contracts that the Strategy Manager allocates funds to. They can be a simple strategy such as "lending USDC on a money-market" or more complex vaults with their own individual strategies such as a "Delta-Neutral Vault".                         |
| Liquidity Buffer | The liquidity buffer is a fund of assets allocated to stables or highlight liquid strategies but seperate from the regular strategies. It is typically 3-5% of the total token allocation of the strategy manager and serves to ensure there is liquidity available for immediate withdrawals. |

Here is a chart overview of the relationship between the various components:

<figure><img src="/files/IaW7RkpvHc9yw9SZvD8v" alt=""><figcaption></figcaption></figure>

Here is the various stakeholders and how they interact with the yield aggregation system:&#x20;

| Stakeholders      | Role                                                                                                                                                                                                                                                                                                             |
| ----------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| Strategy Advisors | <p>Strategy Advisors are individuals responsible for modelling the algorithms for risk parameters, allocations, optimisation and rebalancing. <br>They regularly assess new potential strategies and their risk parameters and whitelist them to be added to the strategy manager. </p>                          |
| Core contributors | Core contributors are responsible for the development of the protocol, and also the building and adding of new strategies if whitelisted by the Strategy Advisors.                                                                                                                                               |
| Users             | Users interact with the protocol by depositing in to Orbit Earn which get allocated by the strategy manager in strategies. Due to the fact strategies are individual vaults, users could also theoretically deposit directly into individual strategies, although this is not accessible on the Orbit front-end. |

## Strategies and the Strategy Manager&#x20;

### **Strategy Manager**&#x20;

The Strategy Manager is a contract that is responsible for the following actions:

* **Strategy Registry:** Maintains a comprehensive record of all strategies, including their status, allocations, and performance metrics.&#x20;
* **Capital Allocation Engine:** Determines optimal distribution of funds across strategies based on risk-reward profiles.
* **Rebalancing Coordinator:** Executes capital movements between cross-chain strategies to maintain target and optimised allocations.
* **Performance Tracking:** Collects and aggregates yield and risk data across all strategies.
* **Risk Management:** Manages the risk management protocols and frameworks.
* **Accumulated Interest Queries:** Queries strategies for accumulated yield regularly so the aUSDC rate can be updated.

### **Strategies**

Strategies are individual vaults with their own interfaces which the Strategy Manager allocates to. These strategies can wrap a simple protocol function, such as lending on a money-market, depositing into an RWA backed stablecoin, or more complex strategies such as a Delta Neutral strategy with multiple actions and it's own management within the strategy.

These strategies are also vaults in their own regards which can be deposited directly into separately from the Orbit Earn vault, although this is not accessible from the Orbit front-end.&#x20;

Strategies are heavily modelled by Strategy Advisors before being whitelisted for allocation by the Strategy Manager, this factors past and future volatility, protocol risk parameters, risk scoring and more...

Strategies are on various chains supported by Orbit, and often need to be created and added by the team of core contributors, depending on their complexity.&#x20;

Each strategy is responsible for the following:&#x20;

* Reporting latest APR, TVL, risk metrics, available withdrawal liquidity and deposit caps.
* Harvesting and autocompounding rewards accrued and reporting them when queried.
* Executing certain functions of risk management, such as increasing gas fees when immediate withdrawal is required during black-swan events.
* Other functions specific to the strategy if more advanced.&#x20;
* Reporting key protocol changes that may effect risk scoring and management.&#x20;

#### **Autocompounding**&#x20;

Strategies automatically and continuously compound rewards into themselves, unless protocol specific caps become a blocker. In that case, the strategy manager may harvest these rewards and allocate them to an alternative strategy.&#x20;

#### Drift and emergency rebalancing&#x20;

Drift occurs when strategies deviate from the target allocation set by the strategy manager. Typically drift is handled during regular rebalancing, but there may be situations where early rebalancing outside of the 4-hour interval rebalance may be required.&#x20;

Drift can be triggered by withdrawals that required pulling of funds from strategies in an imbalanced way, risk parameters being triggered by a individual protocol or general market conditions, or signficant changes in yield in a strategy.

#### Strategy Advisors&#x20;

Strategy Advisors are a group of individuals that are responsible for modelling, setting and maintaining the algorithms that determine how the strategy manager allocates funds, rebalances and manages risk. These required more manual adjustments and monitoring in the early stages of the protocol until maturity. Strategy advisors also perform the deep risk modelling on new potential strategies before they are added.&#x20;

#### Adding of new strategies&#x20;

New strategies will be added periodically to the Strategy Manager as the yield aggregator expands, this will broader the opportunities to further optimise yield and diversify assets. Potential strategies will be researched and earmarked, then modelled by the team of Strategy Advisors. This may also require some modelling and updating to the generate Strategy Manager algorithm as well.\
Once modelling is complete and it is satisfactory, the core team will work on any tech integrations if required to add the strategy to the protocol.&#x20;

In the future, a DAO governance proccess will be involved when adding new strategies to the protocol.&#x20;

## Allocation Distribution&#x20;

Allocations are driven by an algorithm initially adjusted and tweaked by Strategy Advisors. It focuses on optimising returns but doing so in a way that models and factors risk.&#x20;

**Allocation Decisions and Optimisation**

Although qualitative metrics guide the initial selection and filtration of strategies to be whitelisted . Orbits primary allocation and rebalancing decisions are driven by a quantitative risk modeling approach that optimises the portfolio based on forecasted volatility and extreme loss metrics. \
\
There are two main goals when determining allocations:

* Ensuring optimal allocations where the risk is minimised.
* Ensuring optimal allocations where risk is minimised but following a target required rate of return. This could be in the case where a lending market strategy needs to be benchmarked against the minimum return rate of a lower-risk T-bills strategy. If below this rate, it is more ideal allocating into T-bills.

Volatility modeling is essential if we specifically want risk-return tradeoffs in our portfolio. Volatility forecasts can help size positions dynamically in a portfolio, scaling back in turbulent periods and leaning in when volatility is low. \
Modelling based on historical data ensures more stable allocations. Focusing on risk-adjusted return, not just APY. (If a money market has high APY but only for a day and it comes with higher risk, the modelling should be able to show this based on patterns. Yields need to be more stable and predictable.)\
\
The allocation models also factors specific weightage constraints on strategies to prevent concentration risk. (Also aids in the case of a third party hack or security breach).

**Adjustments to the weighting and allocation model**

Strategy Advisors may opt to make adjusments to the allocation weights and alogrithm based on the following:&#x20;

* Adjustment to liquidity withdrawal issues based on historical performance.
* Strategies are added or removed.
* The optimisation setup shows a difference in current weights and optimal weights due to risk or volatility adjustments in some of the strategies that the model captures.

## Liquidity Buffer&#x20;

The Liquidity buffer is a fund of allocated assets dedicated to making withdrawals more smooth and efficient. The Strategy Manager retains 3-5% of allocation in this pool which is either kept in stablecoins or invested in highly liquid strategies on the home chain.

This liquidity buffer is designed to increase in times of market stress, and replenishes itself regularly with rebalances when it gets low.&#x20;

When markets are unstable or showing signs of stress, the yield aggregator automatically increases the fund by up to an additional 3%. \
During times of abnormally high withdrawals, an additional 2% in easily accessible funds will be added to the liquidity buffer to prepare for potential future withdrawals.

If large withdrawals that surpass the liquidity buffer occur, Urgency Factor will kick into gear and the Strategy Manager will:

* Execute immediate rebalancing (Prioritise withdrawal from lowest-yielding strategies if liquidity is available)
* Bypass normal fee optimization
* Prioritize risk adjustment over cost minimization
* Replenish liquidity buffer in next rebalancing cycle (May be triggered instantly due to Drift rules)


---

# Agent Instructions: 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.

Perform an HTTP GET request on the current page URL with the `ask` query parameter:

```
GET https://orbit-16.gitbook.io/orbit-docs/the-yield-aggregator/strategies-and-allocation.md?ask=<question>
```

The question should be specific, self-contained, and written in natural language.
The response will contain a direct answer to the question and relevant excerpts and sources from the documentation.

Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.