What is Coin Set rebalancing & why is it needed?

Rebalancing a coinset is a way to ensure that as the markets change & evolve, the coinset is able to best align with its theme & its idea. Rebalancing a coinset involves two activities:

  • Adding/Removing tokens: This essentially means that we ensure that the tokens that are part of a coinset are the ones that best represent the ideology of that coinset in the crypto market. So in case of Crypto Blue-Chip coin set, we are picking up the top 5 tokens in the market, so as the markets change it is natural that the tokens that are currently in the top 5 might get replaced and rebalancing would be a way to ensure that this change in the market is reflected in the coinset.

 

  • Altering weights assigned to tokens: What percentage of a coinset would each token comprise? These weights are carefully calculated by researchers at Mudrex with the goal to minimize risk and ensure stable returns in the coinset. As part of rebalancing, weights are also considered and adjusted accordingly to create the best possible mix of the constituent tokens from a risk-returns perspective. For example, in Crypto Blue Chip the 5 tokens have weights which correspond to their market caps, so that a token having higher market cap contributes more to the coinset and thus ensures higher stability. When the coinset is rebalanced, these weights will also be readjusted as the market caps would have changed.

So in summary, rebalancing is an act of ensuring the coin set is best aligned with its theme in the market and that the weights assigned to constituent tokens are a good blend to minimize risk and ensure stable returns.

 

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