> For the complete documentation index, see [llms.txt](https://city-protocol.gitbook.io/docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://city-protocol.gitbook.io/docs/issuance-and-operation-layer/otp-architecture/portfolio-lifecycle.md).

# Portfolio Lifecycle

{% stepper %}
{% step %}

### **Portfolio Methodology**

The methodology is defined and published, covering theme or index, constituent selection criteria, weighting method, reconstitution schedule, drift bands, rebalance triggers, accepted subscription assets, fee schedule, eligibility policy, and distribution policy. Publication in advance allows a participant to establish what the portfolio holds, and the conditions under which it changes, before subscribing.
{% endstep %}

{% step %}

### **Constituent Validation**

Each proposed constituent is checked for eligibility, covering token address and network, issuer and backing model, custody or reserve verification and proof of backing, price source, onchain liquidity profile, approved trading venues, and transfer restrictions. A constituent that fails validation cannot enter the portfolio.
{% endstep %}

{% step %}

### **Portfolio Publication and Account Provisioning**

The portfolio is published to the registry. A participant is provisioned with their own onchain account and grants scoped execution permissions to the rebalancing executor. No assets move at this stage, and the permission grant conveys no withdrawal authority.
{% endstep %}

{% step %}

### **Subscription**

The participant supplies a single accepted asset. The eligibility and access policy is checked, then the basket execution router acquires every constituent at its target weight in one transaction, within published slippage bounds, delivering the assets into the participant's own account. There is no subscription queue, no pricing cycle, and no pending settlement, because there is no pool to price and no shared balance to allocate against.
{% endstep %}

{% step %}

### **Weights and Position Reporting**

The portfolio has no unit and no unit price. What is reported is composition: the constituents held, the balance of each, the target weight, the actual weight, and the drift between them.

```
Target weight(i)  = the methodology weight for constituent i
Actual weight(i)  = (balance(i) x price(i)) / sum over all constituents of (balance x price)
Drift(i)          = Actual weight(i) - Target weight(i)

A rebalance triggers when |Drift(i)| exceeds the published band,
or on the scheduled reconstitution date.
```

The reporting process answers five questions:

1. Which constituents does the methodology specify, and at what weights?
2. What does the account hold at present?
3. How far has each holding drifted from its target?
4. Is every constituent currently eligible, unpaused, backed, and priced within policy?
5. Can a rebalance execute within the permission set, slippage bounds, and venue rules?
   {% endstep %}

{% step %}

### **Rebalancing and Reconstitution**

Rebalancing restores the published weights on cadence or on a drift trigger. Reconstitution changes the constituent set itself where the methodology's schedule or selection criteria require it, and is published before it executes. Every rebalance is bounded by the delegated permission set, the constituent allowlist, approved venues, and slippage caps, and every execution is recorded onchain and attached to the portfolio's reporting history. Rebalancing is not a transfer of participant assets; it is a set of trades executed inside the participant's own account.
{% endstep %}

{% step %}

### **Exit or Retirement**

A participant exits by converting the basket back to a single asset in one transaction, or by selling constituents individually. Exit does not depend on portfolio liquidity terms, a redemption queue, or a settlement cycle, because the participant is selling assets already held.

Portfolio retirement differs from vault wind-down. A vault winds down by liquidating components and settling claims, because it holds depositor assets it must return. A retired OTP has nothing to liquidate and nothing to return. Retirement means the methodology ceases to be maintained and rebalancing stops. Participants retain every asset held at that point. City Protocol publishes notice in advance of retirement.
{% endstep %}
{% endstepper %}