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What is going on? Welcome back to the underdog investor audio experience. It is Colin and I want to bring you something straight from one of our accelerator calls that happened recently. It was such a great question. And the timing of this episode is going to be a little wonky depending on when it is released to you. But recently we have seen a fairly big pullback, 25, 30% pullback on some assets here in the last 24 to 48 hours. And one of the members in our accelerator program, which is a group coaching program that I like to run. And the question was, should I turn off my auto rebalancing feature on VFAT, right? And not to go too down, you know, down rabbit hole on VFAT specifically. But the question was in terms of the strategy for auto rebalancing. Now, I want to start here by saying auto rebalancing is an incredible tool that a yield aggregator like VFAT can help you execute. And so instead of having to go directly to the decks, remove your liquidity, reenter a new position with a new range and a new set of assets, which is really cumbersome and takes a lot of effort to do with a lot of different steps. What we can do is we can set up auto rebalancing features on some of these yield aggregators. Now pro to that is that it's very passive, very hands off, and you can constantly stay in range with a tighter range. That's a really good positive thing. The downside to this is that if there is massive price movement and you have a tight range and you have auto rebalancing on, you are going to be automatically rebalancing every single time you go out of range. And every single time you go out of range, you are locking in impermanent loss, which to sum that up really quickly is that if you were, let's say you're in a wrapped ETH USDC pool and ETH goes down in value. Well, if you have a tight range and the price of ETH drops down out of the bottom end of your range and you get fully converted into ETH, well, if you're going to rebalance that ETH you are selling for USDC at a lower price point than you had originally in the original range. And so by doing that action, by selling the ETH and converting that to USDC to get back into range, you are locking in the impermanent loss that you experienced in that original range. Now that's not, it's not a terrible thing to do that, you know, once or twice. But if if ETH is having a 25% pullback and you are auto rebalancing every hour as this thing is moving to the downside, you are locking in so much impermanent loss every single time you're doing that. And you're not earning enough fees or rewards to offset the impermanent loss that you're locking in. And so the question to summarize this one more time is should you turn off or pause your auto rebalancing function when markets are moving drastically. And never is it financial advice, but I would recommend turning off that auto rebalancing feature because again, you're locking in the impermanent loss every single time you rebalance. And so we actually took a look and it rebalanced, I think it was like seven or eight times over the course of 24 to 48 hours. And so just think about how much impermanent loss that you're locking in by selling that ETH that's lower in value for USDC and then having it drop again. And then you're converting it back to USDC again. And it drops again. And then you sell it again. That process is just you're locking in a lot of impermanent loss, right? So hopefully that brought you some value today. And for some of you, this may not be, you know, it may not be relevant because you don't have this strategy in motion. But it's something to consider if you were to ever want to do that, you have to be a little bit more active. Although it's a passive strategy, because it rebalances it for you, it's still an active endeavor. And that's really what I wanted to communicate is that when you deposit capital into one of these positions, whether it's really passive or really active, you have to be paying attention to the market and the price action of these assets. And that's where technical analysis and developing those skills comes in, because now you can read the market and sort of get a little bit of a crystal ball to get an idea of, hey, what can I expect over the next 24 to 48 hours? And that way you can set up your positions to be in line with that market, you know, that market analysis. So hopefully this brought you some value today. If you have any questions, or if I can support you with anything, obviously hop in the OIG, make a post in the community, tag me. I won't miss it if you tag me. And with that being said, I just wish you the best. And I really want you to continue your education as a DeFi investor, and to take advantage of the awesome opportunities that we have in front of us. So with that being said, I will see you in the next episode. [BLANK_AUDIO]
