Rebalancing Trade Grid

Representing the Asset and Capital Ledgers visually illustrates the plot the adequacy regions for held assets and capital against each other on a plane in the two figures below.

The Ledgers are a representation of liquidity adequacy, which then starts to inform the trading strategy between the pools. For example, when there are surplus assets according to the asset liquidity ratio (LR3), these should be sold to improve Capital Adequacy in the first instance, or to develop Maker profit in the second.

Sale or purchase of assets should always bring the intersection of the adequacies toward the diagonal. Because we must develop a profit for Makers, we have clear target regions. The stress region in the second diagram below indicates where the protocol is not able to bring the values of the asset and capital ledgers to within the deadband simultaneously:

From here we can develop a basic swapping strategy for the rebalancing algorithm:

The algorithm fully implemented is segmented into further regions (stress deadbands not shown here):

Last updated