A few weeks ago, we announced that upgrades were coming to Robo Sets on TokenSets with a new and improved rebalancing mechanism that we call Time-Weighted Average Price or TWAP.
Today, we’re excited to announce that the first upgraded Robo Sets that take full advantage of this new mechanism are now live on TokenSets!
Users can now trade out their old ETHRSIAPY, ETHMACOAPY and ETHEMAAPY Sets for their upgraded counterparts!
Key Points
- ETHRSIAPY, ETHMACOAPY and ETHEMAAPY have been upgraded and the old versions moved to the Legacy Sets tab on TokenSets.
- Rebalances for the old versions will continue to be supported indefinitely
- The TWAP mechanism reduces slippage and impact on market price during large rebalances which ultimately benefits Set holders
- TWAP enables less liquid ERC20 assets to be put into Sets (e.g. WBTC) while keeping slippage low during trades
- We’ll be rolling out more new and upgraded Robo Sets in the coming weeks on TokenSets
The upgraded ETHRSIAPY, ETHMACOAPY and ETHEMAAPY Sets are identical to their non-TWAP counterparts — the only difference is that these Sets can now take advantage of the TWAP rebalancing mechanisms.
The old non-TWAP Sets will still be fully supported, but moved into the Legacy Sets tab on the TokenSets explore page and the buy option for these Sets will be disabled.
The Set being rebalanced remains in the rebalanced state throughout the entire TWAP rebalance, including the time between chunks. This means, like before, the Set cannot be bought and sold during the rebalance.
Because Set Protocol’s rebalances are now more efficient, we can now include more ERC20 tokens inside of Sets that we were not available before due to liquidity concerns.
New Robo Sets will be redeployed to take advantage of TWAP and users of old Sets are encouraged to trade them in for the new ones (noting that this isn’t a requirement). Social Traders have the ability to rebalance whenever they want so their Sets do not require a redeployment and will be able to take advantage of TWAP mechanism. For further details, check here.
Time-Weighted Average Price (TWAP) is a trading strategy used to slice up big orders into smaller chunks sold over a period of time with the goal of reducing slippage. When a trader submits a large buy or sell order, they run the risk of negatively influencing the price of the asset with the trade itself, resulting in them and their users getting a worse deal. In order to combat this, a trader may elect to run a TWAP strategy where they break up the large order into smaller size ones to make sure the price during the trade stays closer to market price.
You can think of Rebalancing as the same as putting a trade on the market. Because the Robo Sets are getting larger, the protocol runs the risk of increased slippage during the rebalances using the current mechanism.
Let’s look at why slippage happens with Set rebalances. During a rebalance, the rebalancing contract submits a large limit order that constantly updates every Ethereum block to make the price more attractive to market makers. This means that the price of the assets being sold, such as ETH, to acquire the assets being bought, such as USDC, starts off at a premium above fair value (ETH price is greater than market price in USDC) and is linearly lowered according to a predefined curve. This allows those participating in the rebalance to get in when the price is right for them. Naturally, this happens once the ETH price in the rebalance is lowered until it is very slightly lower than the market price — once that happens, rebalancing liquidity providers (market makers) compete on swapping out the ETH in the Set for USDC.
That difference between the ETH price in the rebalance and the market price is known as the slippage and is the value lost from the Set. This is by design so that we can trustlessly incentivize liquidity providers to rebalance our Sets and maintain the integrity of the protocol.
Because the difference is pure profit for the liquidity provider, many of them compete aggressively on giving the Set the best price so the slippage ends up being very small (normally between 0.4% and 1%). Though, problems start to rise when the rebalances get so large that it becomes hard for liquidity providers to get enough capital to buy assets from the Set, or effectively hedge their positions. The harder this process is for the liquidity provider, the longer and less competitive the rebalance becomes, the more the ETH price gets lowered and diverges from the market price, and thus the more slippage is realized by the Set.
To combat this, TWAP Rebalancing divides the rebalancing into several chunks that conduct Set’s usual linear rebalances. Each chunk uses the latest oracle price at the start of its own rebalance in order to make sure the most updated price is used. So each chunk rebalance uses the latest market price and is able to close quicker, resulting in a much more efficient process and less loss to slippage.
We’re excited to bring TWAP-enabled RoboSets to you today with plans to release more new and upgraded RoboSets in the near future. You can get started on TokenSets.
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