# Rebalancing Up

<figure><img src="https://1838495634-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FuQqfnSZUSHvj0FdEt8I8%2Fuploads%2FGHtVxUKBPybncysHrycz%2FRebalancing%20Up.png?alt=media&#x26;token=779ef793-abb6-4ba2-9d46-bfcebcca97c5" alt=""><figcaption></figcaption></figure>

## Vault Function Overview

***RebalanceUp*** is a vault function that gets called by a bot when the Asset / Liabilities (A/L) ratio falls below the preset threshold (<mark style="color:green;">REBALANCE\_AL\_FLOOR</mark>). In response, the lov-Strategy vault will sell vault reserve assets back to the token it borrowed in order to repay its debt to the liquidity provider and reduce its exposure to the collateral asset. This transaction will increase the A/L ratio (LTV goes down). The net effect is that Effective Exposure (EE) to the lov-Strategy vault reserve asset will be reduced on a per vault share basis.

{% hint style="info" %}
*Users should note that due to the leverage factor, the vault share price may fall if additional collateral is being withheld to back the debt due to deteriorating price. Similarly, if additional collateral is sold to repay debt to restore Target Effective Exposure, the lov-Strategy vault share price will be impacted.*
{% endhint %}

### A/L Factors That May Trigger RebalanceUp:

#### Price Volatility

* Spot price of vault reserve asset decreases relative to the borrowed token

#### Interest Rate Volatility

* The Interest Rate rises for the borrowed token

#### Outflows

* New user withdrawals of the vault reserve asset e.g. sUSDe or wstETH

#### **Example RebalanceUp Scenario (described in stETH terms for simplicity)**

lov-stETH WETH liabilities priced in stETH terms i.e. 1 stETH = 1 WETH\ <mark style="color:green;">REBALANCE\_AL\_FLOOR</mark> = 1.2

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\
Assets: 9,000 - 1,800 = 7,200 stETH\
Liabilities: 6,000 stETH\
Current A/L: 1.2\
Effective Exposure: 6X Leverage (1,200 stETH collateral // 7,200 stETH exposure)

Alice redeems 1,800 stETH from the lov-stETH Vault\
This pushes A/L ratio to the <mark style="color:green;">REBALANCE\_AL\_FLOOR</mark> of 1.2\
RebalanceUp will be triggered to sell 3,600 stETH from wstETH reserves to repay 3,600 WETH

T2\
Assets: 7,200 - 3,600 = 3,600 stETH\
Liabilities: 6,000 - 3,600 = 2,400 stETH\
Current A/L: 1.5\
Effective Exposure: 3X Leverage (1,200 stETH collateral // 3,600 stETH exposure)


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