The Rebalancer serves a single purpose: to automate the rebalancing of concentrated liquidity positions (CLPs) when the relative prices of their underlying assets change.

In this post we will outline what Rebalancers are, what the trust assumptions are and how the Rebalancers work.

Why you need Rebalancers

DEX’es like Uniswap V3, Uniswap V4, Slipstream, Alien Base… use concentrated liquidity. As a Liquidity Provider you only supply liquidity between a lower and an upper price (labeled $p_a$ and $p_b$ on the graph below). If the price moves outside of this range, you will no longer be earning fees as LP.

Hence in order to continue earning fees as Liquidity provider, these CLPs have to be managed and rebalanced so that the amount of fees earned is maximised, while costs (like swap fees, Impermanent Loss (IL) etc.) are minimised.

Finding the optimal strategy that determines when to rebalance, and which new lower and upper price to use, is a complex problem to solve, and it depends on multiple factors:

• Type of liquidity pool (stable pool, correlated assets, volatile assets…)
• Market conditions (bullish, bearish, flat)
• Objectives of the position owner
• Chain conditions e.g. gas price
• …

Some simple rebalance strategies can be:

• Rebalance when out of range back to a 50/50 position
• Trailing strategies: only rebalance when out of range in one direction
• Rebalance after fixed time periods

But they can (and should) be much complexer:

• Non-symmetric positions
• Use variable ranges depending on volatility
• Increase ranges to avoid IL