# Portfolio allocation

### Asset Categories

Nara portfolio allocation is designed to maintain stability for NaraUSD while delivering attractive returns to NaraUSD+ holders. Capital is distributed across two complementary asset categories:

#### 1. Liquid Reserves (Stablecoins and Yield-Bearing Instruments)

**Allocation:** A designated portion of capital is maintained in highly liquid stablecoins (e.g., USDT) and yield-bearing stable assets.

**Purpose:** Enables immediate processing of NaraUSD redemptions. These reserves are continuously replenished as underlying PayFi positions reach maturity and return principal plus interest.

**Risk Profile:** Low-risk, highly accessible assets that ensure the protocol can fulfill withdrawal requests and maintain operational continuity during volatile market conditions.

#### 2. PayFi Assets (Tokenized Payment Financing)

**Allocation:** The primary capital deployment targets real-world, short-duration payment financing opportunities derived from international trade flows. These instruments are tokenized through partnerships with institutional asset managers overseeing more than $12 billion in annual transaction volume.

**Purpose:** Captures attractive risk-adjusted returns exceeding 15% APR by providing working capital to facilitate cross-border payment settlements. As these financing arrangements conclude, they restore liquidity to reserves and distribute earnings to NaraUSD+ participants.

**Risk Profile:** Backed by actual commercial transactions and payment obligations, offering fundamentally distinct risk characteristics compared to speculative crypto trading. The brief tenor of these financing facilities (generally 30-90 days) enables frequent capital recycling and limits exposure to extended time horizons.

### Dynamic Allocation Strategy

The protocol implements an adaptive capital management framework to respond to evolving conditions and maximize risk-adjusted performance. 

Core principles include:

**Liquidity Prioritization:** A minimum threshold of capital remains in accessible reserves to satisfy withdrawal requests. Portfolio duration is calibrated to match anticipated redemption patterns and liability profiles.

**Yield Optimization:** Capital deployment balances readily available investments against higher-returning PayFi opportunities, with allocations adjusted based on historical redemption behavior and the maturity timeline of active financing positions.

**Risk Management:** Exposure is distributed across multiple payment financing counterparties and geographic markets to mitigate concentration concerns. Rigorous vetting and ongoing oversight of all PayFi originators is maintained.

**Treasury Growth:** A portion of protocol earnings is retained within the reserve structure, strengthening the protocol's liquidity buffer and capacity to manage periods of heightened withdrawal activity or market disruption.

**Insurance Fund:** An additional allocation of earnings is directed to a dedicated insurance fund, which provides a protective layer against potential defaults or underperformance of PayFi assets. This fund ensures long-term protocol solvency and safeguards user capital in adverse scenarios.