Strategy Rebalancing

Strategy rebalancing is the process of adjusting the allocation of assets within a portfolio or vault to maintain a target risk or return profile. In the context of DeFi, this involves shifting capital between different liquidity pools or lending protocols based on changing market conditions or yield opportunities.

Automated vaults perform this regularly to ensure the strategy remains optimized for the current environment. This process can involve selling one asset for another, which may incur trading fees and slippage.

Effective rebalancing requires a balance between chasing higher yields and managing transaction costs. It is a key mechanism for maintaining the performance of long-term yield strategies.