Thread by @SetProtocol

1/ A thread on Set rebalancing:

The magic of Set Protocol is that rebalances happen automatically via an open dutch auction that anyone can participate in.

Unlike the minting of a Set on @tokensets (which is via @kybernetwork) rebalance liquidity can be sourced from anywhere.

2/ Rebalancing is the process of realigning the weights of a Set by periodically purchasing and selling components to maintain a certain allocation.

This works in 3 stages:

1. All rebalancing criteria are met
2. A rebalance is proposed
3. A rebalance is executed and settled

3/ For example: the ETH20SMACO Set will only be ready for a rebalance if the following conditions are met:

1. A minimum of 4 days has passed since the last rebalance
2. The current price of ETH has crossed the 20 day moving average of ETH for between 6-12 hours

4/ When all rebalancing criteria are met, the Set enters the proposal period, a grace period where Set holders can review the proposed rebalance parameters & opt out if they disagree. All actions such as buying, selling, issuing, & redeeming are all available during this period.

5/ Once the proposal period ends, the Set enters the rebalancing phase. During this time, buying, selling, issuing, and redeeming are all paused, and the over-collateralized token(s) are traded for the under-collateralized token(s) in a dutch auction by liquidity providers.

6/ During the auction process, traders can submit bids to swap the new components of the Set for the old ones. Over time, the price becomes more and more favorable to traders as the auction goes on which ensures that the rebalancing reaches completion.

7/ Currently, Set Labs provides most of the liquidity but anyone is able to participate by hooking up to our smart contracts.

It’s important to note that liquidity for rebalances is not sourced from Kyber Network like it is when users acquire or dispose of a Set.

8/ After all of the collateral of a Set has been rebalanced to its new weights, the rebalance is settled, and buying, selling, issuing, and redeeming are all reactivated again.

9/ It’s worth noting that the length of a rebalance auction varies; for example, the auction typically takes around 2 hours for the ETH20SMACO Set to reach fair value.

Buy and Hold Sets typically take ~12 hours and the ETH & BTC minimum volatility sets take around 4 hours.

10/ For more technical information on how rebalances work, you can head to our explainer article below.

help.tokensets.com/en/articles/31…