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Automated Rebalancing

Understand how strategies automatically adjust Liquidity Zones to maintain optimal capital efficiency and maximize fee earnings on MegaFi.

At a Glance​

  • Rebalancing adjusts Liquidity Zones to keep positions active and efficient
  • Triggered by price movements, volatility changes, or optimization opportunities
  • Executes in sub-10ms on MegaETH
  • Gas costs under $0.01 per rebalance make frequent adjustments profitable
  • Algorithms optimize for net return after gas costs
  • Manual override available for advanced users

What Is Rebalancing?​

Rebalancing means closing your current liquidity position and opening a new one with different Liquidity Zone boundaries:

Before Rebalancing:
ETH Price: $2,100
Your Zone: $1,900 - $2,100
Status: Near upper edge

After Rebalancing:
ETH Price: $2,100
Your Zone: $2,000 - $2,200
Status: Centered, optimal for continued earning

Goal: Keep your position active and earning fees as market conditions change.

Why Rebalance?​

Price Drift​

As price moves, your position drifts toward zone edge:

Without rebalancing, position would soon exit range and stop earning.

Optimization​

Even if position is active, a different zone might earn more fees:

Current Zone: $1,900 - $2,100 (wide)
Trading Activity: 80% of volume between $1,950 - $2,050 (narrow range)

Rebalance to: $1,950 - $2,050
Result: Same capital earns 3x more fees by focusing on active area

Volatility Adaptation​

Market volatility changes. Zones should adjust:

Low Volatility: Tighten zones for higher efficiency.

High Volatility: Widen zones to stay active through swings.

Rebalancing Process​

1. Trigger Detection​

Algorithm continuously monitors for rebalancing triggers:

Price Triggers:

  • Price within X% of zone boundary
  • Price moved Y% from zone center
  • Price exited zone entirely

Market Triggers:

  • Volatility increased/decreased significantly
  • Volume distribution shifted
  • Better zone identified with >Z% fee improvement

Time Triggers:

  • Minimum cooldown period elapsed
  • Maximum time since last rebalance

Parameters vary by Strategy Mode.

2. Opportunity Analysis​

Before rebalancing, algorithm calculates:

Expected Benefit:

Better zone projects $10/day more fees
Current zone projects $8/day
Benefit: $2/day improvement

Cost:

Remove liquidity: $0.003
Add liquidity: $0.005
Opportunity cost during tx: $0.002
Total: $0.01

Net Benefit:

Daily improvement: $2
Cost: $0.01
Payback: 0.005 days (7 minutes)
Annual benefit: $730

Decision: REBALANCE

3. Zone Calculation​

Algorithm determines optimal new zone:

Inputs:

  • Current price
  • Recent price history
  • Volatility metrics
  • Volume distribution
  • Strategy Mode parameters

Output:

  • New lower bound
  • New upper bound
  • Expected improvement

Zone calculation details →

4. Execution​

Rebalancing executes as single atomic transaction:

1. Remove liquidity from old position
2. Collect accumulated fees
3. Calculate token amounts for new zone
4. Add liquidity to new zone
5. Update position tracking

Total time: Sub-10ms on MegaETH.

5. Verification​

Post-rebalance checks:

  • New position created successfully
  • Liquidity amount matches expectation
  • Zone boundaries correct
  • Fees collected and tracked

If verification fails, revert entire transaction.

Rebalancing Strategies​

Reactive Rebalancing​

Wait for specific triggers, then respond:

IF price within 10% of zone edge
THEN rebalance to center on current price

Pros: Predictable, low frequency, clear logic.

Cons: May miss optimization opportunities.

Used By: Conservative Mode.

Proactive Rebalancing​

Anticipate price movements and rebalance early:

IF trend detected AND current zone not aligned with trend
THEN adjust zone asymmetrically toward expected direction

Pros: Positions optimally before moves occur.

Cons: Wrong predictions waste gas.

Used By: Aggressive Mode with trend indicators.

Threshold Rebalancing​

Rebalance when improvement exceeds threshold:

CALCULATE expected fee improvement
IF improvement > threshold (e.g., 20%)
THEN rebalance to better zone

Pros: Optimizes continuously, not just on boundaries.

Cons: More complex logic, more frequent rebalancing.

Used By: Balanced and Dynamic Modes.

Time-Based Rebalancing​

Rebalance on schedule regardless of price:

Every 24 hours:
  Calculate optimal zone
  IF different from current AND beneficial
  THEN rebalance

Pros: Predictable gas costs.

Cons: May rebalance unnecessarily or miss urgent needs.

Used By: Custom strategies (not default modes).

Gas Optimization​

Strategies minimize gas costs:

Batching​

When possible, batch multiple operations:

Single Transaction:
- Remove liquidity from Position A
- Remove liquidity from Position B
- Collect fees from both
- Add liquidity to new positions A & B

Gas Saved: ~40% vs separate transactions

Threshold Filtering​

Only rebalance when benefit >> cost:

Minimum Net Benefit Thresholds:
Conservative: $5 improvement needed
Balanced: $2 improvement needed
Aggressive: $0.50 improvement needed

With $0.01 gas cost, even aggressive mode needs 50x return on gas

Cooldown Periods​

Prevent over-trading:

Conservative: 12 hours minimum between rebalances
Balanced: 1 hour minimum
Aggressive: 30 minutes minimum

Prevents reacting to noise or temporary price spikes

Impermanent Loss​

Rebalancing affects impermanent loss:

IL from Rebalancing​

Each rebalance may realize IL:

Original Position:
1 ETH + $2,000 USDC (at $2,000/ETH)

Price rises to $2,200:
Position now 0.91 ETH + $2,200 USDC (auto-rebalanced by pool)

Rebalance:
Remove: 0.91 ETH + $2,200 USDC = $4,202 total
Holding would be: 1 ETH + $2,000 USDC = $4,200 total

IL Realized: -$2 (pool rebalancing) + $2 (fee earnings) = $0 net

Add to new zone: 0.91 ETH + $2,200 USDC

Frequent rebalancing can increase realized IL.

IL Mitigation​

Strategies include IL management:

Fee Offset: Only rebalance when fees > realized IL.

Wide Zones: Conservative mode minimizes rebalances and IL.

Trend Alignment: Asymmetric zones reduce rebalancing against trend.

Stop Loss: Exit position if IL exceeds threshold.

Manual Rebalancing​

Override automated strategy:

When to Manual Rebalance​

Strong Conviction: You predict major price movement.

Strategy Limitation: Algorithm doesn't account for external event.

Emergency: Need to close position immediately.

How to Manual Rebalance​

  1. Click position in CLM
  2. Select "Manual Rebalance"
  3. Set new zone boundaries
  4. Review expected outcome
  5. Confirm transaction

Warning: Manual rebalance may deviate from strategy optimization. Use carefully.

Rebalancing Analytics​

Track rebalancing performance:

Metrics​

Rebalance Count: Total number of rebalances.

Rebalance Frequency: Average time between rebalances.

Gas Costs: Cumulative gas spent on rebalancing.

Improvement Per Rebalance: Average fee increase from each rebalance.

Success Rate: % of rebalances that improved position.

Visualization​

Interface shows:

  • Rebalance history timeline
  • Zone width over time
  • Price vs zone boundaries chart
  • Fees earned between rebalances

Analyze what's working and what isn't.

Advanced Rebalancing​

Multi-Leg Rebalancing​

Adjust multiple positions simultaneously:

Position A: ETH/USDC
Position B: WBTC/ETH

Rebalance both in single transaction:
- Lower gas costs
- Coordinated zone adjustment
- Maintain portfolio balance

Cross-Pool Rebalancing​

Shift capital between pools:

IF ETH/USDC volume declining AND WBTC/ETH volume increasing
THEN remove some from ETH/USDC, add to WBTC/ETH

Dynamically allocate capital to highest-earning opportunities.

Asymmetric Rebalancing​

Adjust zones based on expected direction:

Current: $2,000
Bullish Bias: $2,000 - $2,400 (favors upside)
Bearish Bias: $1,600 - $2,000 (favors downside)

As price moves in expected direction, position stays active longer

FAQ​

How often will my position rebalance?
Depends on mode. Conservative: 1-2x/month. Balanced: 8-12x/month. Aggressive: 30-50x/month.

Can I see rebalancing before it happens?
Not currently. Strategies rebalance automatically when conditions met.

What if I disagree with a rebalance?
Switch to manual mode or choose different Strategy Mode.

Does rebalancing guarantee better performance?
No. It optimizes based on algorithms, but markets are unpredictable.

Can rebalancing lose money?
Each rebalance has small cost. If done too frequently without sufficient benefit, cumulative costs could exceed gains.

How do I know if rebalancing is working?
Compare net APR (after gas) to pool average or manual management.

Next Steps​

Understand rebalancing mechanics:

Adaptive optimization.