Rebalancing Symmetric Strategy

A deep dive into how the Tempest Rebalancing Symmetric Strategy Works

Rebalancing Symmetric Strategy

Tempest's Rebalancing Symmetric Vaults are designed to optimize user returns while still prioritizing reducing impermanent loss. It does so by utilizing limit orders to correct portfolio imbalances caused by price movement rather than the swaps used in active rebalancing strategies. This achieves 2 major things

1. Avoids the Vault paying swap fees to rebalance

2. Gradually rebalances with price movement over a range(Limit Order Range). By doing so the vault is making fees while rebalancing. Although the Vault still experiences permanent loss, by making fees it is able to offset the permanent loss created by unfavorable selling of one asset for the other. As price tends to not move in straight lines, passive rebalancing vaults work by betting that the price distance * fee outweighs the permanent loss experienced by the vault

Tempest’s passive rebalancing vaults only require 3 parameters to function

1. Base Order Width - This is the width of the 50/50 Concentrated Liquidity Position that forms the bulk of the liquidity providing

2. Limit Order Width - The limit order width is utilized to define how the vault will use a limit order to passively get rid of the excess asset

3. Rebalance Frequency - This is the frequency at which the ALM vault rebalances which involves the placing of 2 new positions, the 50/50 base order and the limit order of the excess asset

How do the Vaults Function?

The vault starts with a 50/50 Position around the current Tick

As price moves, one asset is converted into another and the vault accrues fees

When rebalancing the Value uses the excess asset to place a limit order at the current tick in the opposite direction to which price moved in t_1

By repeating this process, every time price reverts, the vault gets more balanced. This allows the vault to effectively rebalance back to 50/50 purely using price movement

These vaults are designed to be very simple on a smart contract level. What makes our implementation of this strategy unique is our off-chain ML model which fine-tunes the above params. We ultimately plan to open-source these models but during the initial stages of our launch Tempest’s core team will oversee the parameter selection to make sure the vaults are performing optimally.

Performance of the Tempest WETH/USDC Vault vs a 50/50 WETH USDC Portfolio(The blue line) and vs a V2 WETH/USDC position(Pink Line)