Rebalancing Down
Last updated
Last updated
RebalanceDown is a vault function that gets called by a bot when the Asset / Liabilities (A/L) ratio rises above the preset threshold (REBALANCE_AL_CEILING). In response, the lov-Strategy vault will supply its vault reserve asset as collateral to a liquidity provider to increase its debt and exposure to the collateral asset. This transaction will reduce the A/L ratio (LTV goes up). The net effect is that Effective Exposure (EE) to the lov-Strategy vault reserve asset will be increased on a per vault share basis.
Spot price of vault reserve asset increases relative to the borrowed token
Value of vault reserve asset increases due to accrued yield, rebases, or farming rewards
The Interest rate falls for the borrowed token
New user deposits of the vault reserve asset e.g. sUSDe or wstETH
lov-stETH WETH liabilities priced in stETH terms i.e. assume 1 stETH = 1 WETH REBALANCE_AL_CEILING = 1.6
T0 Assets: 9,000 stETH Liabilities: 6,000 stETH Target A/L: 1.5 Effective Exposure: 3X Leverage (3,000 stETH collateral // 9,000 stETH exposure)
T1 Starting Assets: 9,000 + 600 = 9,600 stETH Starting Liabilities: 6,000 stETH Current A/L: 1.6 Effective Exposure: 2.67X Leverage (3600 stETH collateral // 9600 stETH exposure)
Bob deposits 600 stETH to the lov-stETH Vault This pushes A/L ratio to the REBALANCE_AL_CEILING of 1.6 RebalanceUp will be triggered to borrow 1,200 WETH to add 1,200 stETH to wstETH reserves
T2 Assets: 9,600 + 1,200 = 10,800 stETH Liabilities: 6,000 + 1,200 = 7,200 stETH Current A/L: 1.5 Effective Exposure: 3X Leverage (3,600 stETH collateral // 10,800 stETH exposure)
