> ## 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.
# Strategy Overview
> How Tori generates yield through market-neutral strategies
Trading strategies generate variable returns based on market conditions. Past performance does not guarantee future results. See [Risk Disclosures](/resources/risks).
## Our Approach
Tori generates yield through **market-neutral trading strategies**, the same approaches institutional trading desks and money market participants have run for decades.
These strategies are fundamentally different from speculating on whether markets go up or down. Instead, they capture returns from **pricing opportunities**: predictable price relationships that temporarily diverge.
**Why market-neutral?**
Traditional yield sources are often correlated with market performance. When markets crash, yields typically compress or disappear just when you need them most.
Market-neutral strategies aim to generate returns **regardless of market direction**. Whether markets rise, fall, or move sideways, the objective remains constant: systematically capture pricing opportunities rather than betting on market movements.
## Strategy Types
Tori deploys capital across multiple complementary strategies. As market conditions evolve, we may expand our strategy set to capture new opportunities while maintaining our market-neutral approach.
### Money Markets
**The opportunity:** Access to institutional-grade short-term lending rates that typically aren't available to retail participants. This is typically our largest allocation.
**How it's captured:**
* Deploy capital into high-quality, short-duration instruments
* Access wholesale rates across global markets
* Hedge currency risk at optimal rates through institutional reach and scale
* Maintain high liquidity and low duration risk
**Why it's market-neutral:** Money market instruments have minimal price sensitivity and provide stable, predictable returns. Any non-USD exposure is hedged.
### Futures Arbitrage
**The opportunity:** Futures contracts often trade at a premium or discount to spot prices. This difference (called "basis") is predictable and can be captured as yield.
**How it's captured:**
1. When futures trade at a premium to spot, buy the asset in the spot market
2. Simultaneously sell the equivalent futures contract
3. Hold both positions until the futures contract expires
4. At expiration, the prices converge and the spread is captured
**Example scenario:**
* AAPL spot price: \$200
* AAPL futures: \$200.30 (0.15% premium)
* Buy spot, sell futures
* Minutes to hours later, when the basis compresses, both positions are closed
* Capture 0.10% (\~\$0.20 per share) on this single trade
* By executing hundreds of these trades daily, small gains may accumulate
*Note: This is a simplified example. Actual execution involves additional considerations like funding rates and margin requirements.*
**Why it's market-neutral:** The long spot position and short futures position offset each other. If AAPL goes up or down, gains on one side are offset by losses on the other. Returns come solely from the basis.
### Calendar Spreads
**The opportunity:** The price relationship between futures contracts with different expiration dates sometimes deviates from fair value.
**How it's captured:**
1. Identify when near-term and far-term contracts are mispriced relative to each other
2. Buy one contract long and sell another short
3. Monitor the relationship as it normalizes
4. Close both positions for a profit
**Example scenario:**
* March AAPL futures: \$200
* June AAPL futures: \$204 (2% spread)
* Historical fair value spread: 1%
* Buy March, sell June
* When spread normalizes to 1%, the excess is captured
**Why it's market-neutral:** The position profits from the relationship between two contracts, not from the direction of AAPL itself.
## The Market-Neutral Principle
All of Tori's strategies share a common design philosophy:
Long positions are offset by short positions
Capital spread across multiple strategies, markets, and timeframes
Rules-based execution removes emotional decision-making
### What This Means in Practice
| Market Condition | Traditional Yield | Market-Neutral |
| ---------------- | ------------------------- | -------------------------- |
| Bull market | High yields (correlated) | Consistent yields |
| Bear market | Yields compress/disappear | Consistent yields |
| High volatility | Unpredictable | May increase opportunities |
| Low volatility | Stable but low | May decrease opportunities |
"Consistent" doesn't mean "guaranteed." Yields will vary based on market conditions, but the goal is to reduce correlation with market direction.
## Risk Management
Sophisticated risk management is fundamental to our strategy execution:
### Position-Level Controls
| Control | Description |
| ------------------------ | ----------------------------------------------- |
| **Position Limits** | Maximum exposure per asset, venue, and strategy |
| **Concentration Limits** | No single position dominates the portfolio |
| **Stop-Loss Rules** | Automatic position reduction on adverse moves |
### Portfolio-Level Controls
| Control | Description |
| ------------------------ | --------------------------------------------- |
| **VaR Monitoring** | Value-at-Risk limits across the portfolio |
| **Correlation Analysis** | Ensure strategies are truly diversified |
| **Stress Testing** | Regular scenario analysis for extreme events |
| **Liquidity Management** | Maintain sufficient liquidity for redemptions |
### Operational Controls
| Control | Description |
| -------------------- | -------------------------------------------------- |
| **24/7 Monitoring** | Continuous surveillance of all positions |
| **Circuit Breakers** | Automatic risk reduction in extreme conditions |
| **Multi-Signature** | Critical operations require multiple approvals |
| **Segregation** | Protocol reserves never commingled with operations |
## What We Aim to Avoid
Our strategy design explicitly seeks to minimize exposure to:
| Risk | How We Avoid It |
| ------------------------------ | ---------------------------------------------- |
| **Directional exposure** | Delta-neutral positioning |
| **Single-asset concentration** | Diversification across assets and instruments |
| **Illiquidity** | Focus on liquid markets and regulated products |
| **Counterparty risk** | Work only with established counterparties |
| **Unhedged currency exposure** | Hedge non-USD exposures |
## Transparency & Verification
Everything we do is designed to be transparent and verifiable:
| Component | Provider | What It Provides |
| ------------------------- | ----------------------- | ------------------------------------------------- |
| **Proof of Reserves** | Accountable | Real-time, independent verification of all assets |
| **Security Monitoring** | Hypernative + Internal | AI-powered 24/7 threat detection |
| **Smart Contract Audits** | Sherlock and Nethermind | Comprehensive security audits with bug bounty |
Current yield rates are displayed in the app and updated regularly.
## Understanding Strategy Behavior
### Temporary Drawdowns Are Normal
Delta-neutral strategies may show temporary paper losses before positions converge. This is expected behavior:
* Positions are designed to offset each other
* Market movements may temporarily affect one side more than another
* As positions converge, these fluctuations resolve
* This is not a permanent loss. It's normal strategy operation
### Risk Considerations
| Risk | Description | How We Address It |
| ---------------- | ------------------------------------- | ---------------------------------------------------------- |
| **Timing** | Positions may take time to converge | Patient execution, professional monitoring |
| **Capacity** | Large AUM can reduce opportunity size | Careful capacity management and strategy rotation |
| **Execution** | Trades may not execute as intended | Professional execution systems and monitoring |
| **Counterparty** | Partner default or issues | Work only with established counterparties; diversification |
Our risk management works to reduce and manage risk systematically. See [Risk Disclosures](/resources/risks) for complete information.
## Next Steps
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Our security approach
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