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Rebalancing

IL management, Dynamic hedging and range adjustments

The key characteristics of the Chamber are:

  • Hedge deviation (shows how close is current state to delta-neutral). Applicable to each borrowed token.

hedgeDeviationi=∣tokenInPooliāˆ’tokenBorrowedi∣tokenInPooli,i=1,2hedgeDeviation_i = \frac{|tokenInPool_i-tokenBorrowed_i|}{tokenInPool_i}, i = {1,2}hedgeDeviationi​=tokenInPooliā€‹āˆ£tokenInPooliā€‹āˆ’tokenBorrowediā€‹āˆ£ā€‹,i=1,2

  • Position LTV (shows how close is the liquidation).

LTV=āˆ‘i=12tokenBorrowediƗUSDPriceicollateralAmountƗcollateralUSDPriceLTV = \frac{\sum_{i=1}^2 tokenBorrowed_i\times USDPrice_i}{collateralAmount\times collateralUSDPrice}LTV=collateralAmountƗcollateralUSDPriceāˆ‘i=12​tokenBorrowedi​×USDPricei​​
  • Range bounds (shows how concentrated is provided liquidity).

upperBound=currentPriceƗkulowerBound=currentPriceklupperBound = currentPrice\times k_u \\ lowerBound = \frac{currentPrice}{k_l}upperBound=currentPriceƗku​lowerBound=kl​currentPrice​

Chamber's hyperparameters are:

  • Hedge deviation threshold: hedgeDev

  • maxLTV, minLTV, targetLTV

  • Target range width k

We have Chainlink and Gelato keepers set up to check for rebalancing condition to trigger it whenever possible, making position management fully decentralized.

When hedgeDeviation of any token is higher than hedgeDiv or LTV is out of (minLTV, maxLTV) bounds rebalance is triggered. After rebalancing position is returned to hedgeDeviation = 0 for every token, LTV = targetLTV, and range bounds set symmetrically around current price.

Such management approach perfectly fits low volatility crab market or medium-bullish(bearish) markets. The worst condition is highly volatile crab market, as rebalancing causes impermanent loss to become realized loss and thus accumulates IL from every price spike.

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Last updated 2 years ago

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