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When should you consider rebalancing liquidity?

Written by Nodar
Updated 10 months ago

Your rebalance trigger parameters will differ based on your investment goals and risk profile but in general could be based one of these:

  • Shifts in liquidity provisioning incentives.

We saw this example with SNX shifting some incentives from sETH pool on Uniswap to sUSD pool on Curve.

  • Shifts in trading activity within liquidity pools.

As other pools start catching traction, liquidity providers could capture extra yield moving some assets to pools with higher volume / liquidity provided.

  • General market shifts.

As prices of underlying assets change, liquidity providers could diversify by reallocating liquidity between pegged and stable pools.
Example: let’s say you are currently providing liquidity in the WETH/ETH pool on Uniswap (aka ETH pegged pool) and ETH price just doubled in the last 24 hours. You might anticipate some pull-back so you want to sell some of your ETH. But instead of simply selling, you could rebalance some of your liquidity straight into the highest yield generating stable pool on Curve. Now while you are waiting to ‘buy the dip’, your stablecoins are generating fees. To buy back in simply rebalance back into the WETH/ETH pool.

  • Automatic pool yield optimizations.

As any yield hacker knows, opportunities in DeFi need to be capitalized ASAP. With pool piping, it’s never been easier to move liquidity around the DeFi ecosystem. Each pool pipe is a general smart contracts so once a pipe is deployed between two underlying platforms, anyone is able to instantly move liquidity between ANY pools within those platforms. Builders could deploy their own auto-rebalancing logic which uses pool pipes to shift liquidity based on set logic.

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