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description: Perpetual Instrument
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# Asset Allocation & Portfolio Construction

A utilizer can submit a proposal for an instrument that purchases a mix of different assets from the open market to construct a portfolio comprised of different assets. A manager will decide if the assets to be purchased are worth the risk given the current market conditions and the assets' quality. If they do so, they will buy **`longZCB.`**

Since **`longZCB`** tokenizes a levered exposure to the underlying instrument where the PnL is realized only whe&#x6E;**`longZCB`** is being redeemed, buying **`longZCB`** for this portfolio instrument is essentially entering a long position on these assets with _liquidation-free_ leverage.&#x20;

> Liquidation free for managers is possible because, since the managers and the lenders share the profit generated by increase in prices, the lenders(passive LPs) have 'consented' to become underwater(with respect to the denominated asset) when prices of assets go down.&#x20;
>
> This is in contrast to cross margin-long positions on exchanges, as the lenders(exchanges) need to be solvent with respect to the denominated asset. &#x20;

As with all [perpetual instruments](../protocol-flow/post-approval), after the portfolio is approved, managers can _issue_ or _redeem_ **`longZCB`** tokens. When a manager issues, the protocol will supply capital to the instrument, which means more capital will be allocated to buying the portfolio. When a manager redeems, the protocol will withdraw capital from the instrument, which means some of the portfolio would be sold to distribute profit/loss to the redeeming manager and the parent vault.&#x20;

{% hint style="info" %}
**Example**: A utilizer constructs a portfolio of 50% ETH and 50% WBTC, at prices of 1000 USD and 20000 USD respectively. He requests a total of 100k to be allocated for this portfolio which amounts to 50ETH and 2.5 BTC.&#x20;

During the assessment phase, enough managers have bought x USD worth of longZCB to fulfill the [approval criterion](../protocol-flow/assessment-and-decision-aggregation), a total of 100k - x USD and the managers' x USD will be used to allocate to the portfolio.&#x20;

After approval, whenever a manager issues y USD worth of longZCB, y \* leverageFactor  USD will be directed from the vault to supply to this portfolio instrument, resulting in a total (y+1) \* leverageFactor USD being used to buy the assets.&#x20;

Likewise, a manager can realize his profit/loss by redeeming z USD worth of longZCB, where (z+1)\* leverageFactor USD worth of the portfolio will be sold on the open market, where the proceeds would be distributed to both the manager and the vault.



### How much profit would the vault make?

The vault would make a (`seniorReturn-1)` \*100% percentage gain, where `seniorReturn` is a parameter computed every block, and where the value is proportional to the amount of profit generated by the portfolio.&#x20;

&#x20;

### How much profit would the manager make?&#x20;

If the total portfolio is worth 110k when the manager redeems, the manager who bought longZCB when the portfolio is worth 100k will make a (((110k/100k) - `seniorReturn)-1)`\* leverageFactor )\*100% return.&#x20;


{% endhint %}



{% hint style="info" %}
**Benefit for the managers**: Liquidation Free cross-margin trading.&#x20;

**Benefit for the LPs**: Set and forget managed portfolios from highly reputable managers(highly skilled traders), with an extra loss buffer.&#x20;
{% endhint %}



