> ## Documentation Index
> Fetch the complete documentation index at: https://docs.tori.finance/llms.txt
> Use this file to discover all available pages before exploring further.

# Reserve Fund

> Protocol reserve fund for risk management

## Overview

Tori maintains a Reserve Fund as an additional layer of protection for extraordinary circumstances. The Reserve Fund serves as a buffer against unexpected events and extreme scenarios that fall outside normal operations.

## Normal Drawdowns vs Extraordinary Events

Understanding this distinction is key:

| Type                     | Description                                                                                              | Reserve Fund Used? |
| ------------------------ | -------------------------------------------------------------------------------------------------------- | ------------------ |
| **Normal Drawdowns**     | Temporary fluctuations in delta-neutral positions that resolve over time                                 | No                 |
| **Extraordinary Events** | Unexpected scenarios like counterparty failures, extreme market dislocations, or operational emergencies | Yes                |

### Why Normal Drawdowns Don't Use the Reserve Fund

Our strategies are **delta-neutral**: they have offsetting positions that converge over time. During periods of market stress:

* Positions may temporarily show paper losses
* As markets normalize, these positions resolve
* This is expected behavior, not a loss requiring reserve deployment

The Reserve Fund is preserved for truly extraordinary circumstances.

## Purpose

The Reserve Fund serves specific critical functions:

<CardGroup cols={2}>
  <Card title="Emergency Buffer" icon="shield">
    Protection against unexpected counterparty failures or extreme events
  </Card>

  <Card title="Operational Continuity" icon="gears">
    Ensures the protocol can continue operating during unforeseen circumstances
  </Card>

  <Card title="Extreme Event Protection" icon="bolt">
    Buffer for black swan events outside normal market behavior
  </Card>

  <Card title="Confidence Builder" icon="handshake">
    Demonstrates the protocol's commitment to resilience
  </Card>
</CardGroup>

## How It Works

### Funding Sources

The Reserve Fund is built and maintained through:

| Source                 | Description                                          |
| ---------------------- | ---------------------------------------------------- |
| **Performance Fees**   | A portion of the 10% performance fee on strUSD yield |
| **Protocol Revenue**   | Other protocol revenue streams                       |
| **Initial Allocation** | Seed capital allocated at launch                     |

### Fund Management

The Reserve Fund is managed with strict principles:

| Principle                | Implementation                                  |
| ------------------------ | ----------------------------------------------- |
| **Capital Preservation** | Conservative investment in highly liquid assets |
| **Liquidity**            | Always available when needed                    |
| **Transparency**         | Included in Proof of Reserves attestations      |
| **Independence**         | Segregated from operational funds               |

## When the Reserve Fund Is Used

The Reserve Fund may be deployed in **extraordinary scenarios** such as:

### Counterparty Failures

If a counterparty experiences unexpected failure, the Reserve Fund provides a buffer while the situation is resolved.

### Extreme Market Dislocations

In truly exceptional market conditions that exceed historical stress parameters, the Reserve Fund can be deployed.

### Operational Emergencies

If unexpected operational issues arise that require capital to resolve, the Reserve Fund can be deployed.

<Note>
  The decision to deploy Reserve Fund capital is made by protocol governance following established guidelines and thresholds. Normal strategy fluctuations do not trigger deployment.
</Note>

## Transparency

### Real-Time Visibility

The Reserve Fund will be included in the protocol's Proof of Reserves attestations from Accountable:

* Current fund size
* Historical changes
* Coverage ratio

### Attestation Reports

Regular attestation reports provide detailed information about the Reserve Fund's status and composition.

## Understanding the Reserve Fund

### What It's For

| Scenario                       | Reserve Fund Role                  |
| ------------------------------ | ---------------------------------- |
| **Counterparty failure**       | Buffer against unexpected defaults |
| **Extreme market dislocation** | Protection in black swan events    |
| **Operational emergencies**    | Capital for unforeseen issues      |

### What It's NOT For

| Scenario                   | Why Not                                                   |
| -------------------------- | --------------------------------------------------------- |
| **Normal drawdowns**       | Expected to resolve naturally in delta-neutral strategies |
| **Temporary paper losses** | Part of normal strategy operation                         |
| **Market volatility**      | Strategies are designed to be market-neutral              |

### Important Considerations

| Aspect                | Details                                                          |
| --------------------- | ---------------------------------------------------------------- |
| **Capacity**          | The fund has a finite size and is disclosed in Proof of Reserves |
| **Not insurance**     | It's a protocol-managed buffer, not third-party insurance        |
| **Extraordinary use** | Reserved for unexpected events, not normal operations            |

The Reserve Fund is one of several protective measures, alongside diversified strategies, risk controls, and professional management.

## Reserve Fund vs Backing Assets

It's important to understand the distinction:

| Aspect        | Reserve Fund                              | Backing Assets           |
| ------------- | ----------------------------------------- | ------------------------ |
| **Purpose**   | Emergency buffer for extraordinary events | Supports trUSD value     |
| **Usage**     | Only for unexpected circumstances         | Active trading positions |
| **Reporting** | Included in attestations                  | Included in attestations |

## Next Steps

<CardGroup cols={2}>
  <Card title="Backing" icon="vault" href="/solution/backing">
    How trUSD is backed
  </Card>

  <Card title="Peg Mechanism" icon="scale-balanced" href="/solution/peg-mechanism">
    How the peg is maintained
  </Card>

  <Card title="Security" icon="shield" href="/security/overview">
    Security measures
  </Card>

  <Card title="Risks" icon="triangle-exclamation" href="/resources/risks">
    Understand all the risks
  </Card>
</CardGroup>