The primary mechanism for portfolio rebalancing is an update of the underlying Balancer Managed Pool weights using Balancer's
There are several mechanisms that can facilitate portfolio rebalancing on-chain. An auction mechanism is the most popular alternative and allows a set of bidders to make price quotes. The problem with auction mechanisms for frequent rebalancing is as follows:
- Auctions are overly sensitive to current market price,
- Auctions restrict participation to larger pools of capital and infrastructure to identify and participate in the auction.
Instead, Aera elects to rebalance portfolio using a Balancer Managed Pool by using weight schedules that steadily change the spot price over time. This has several benefits:
- Many more market participants are participating in Aera trading (even unknowingly, for example by using trade routing services),
- Rebalancing is spread out over time, retaining some of the benefits of TWAP trading.