Pro
Mitigating Loss Versus Rebalancing
Key Insights
- Loss Versus Rebalancing (LVR) is a form of MEV caused by discrepancies between onchain and offchain prices, leading to transactions at outdated prices for liquidity providers.
- LVR doesn't result in realized losses for LPs but represents an opportunity cost compared to similar offchain trading strategies.
- Current LVR mitigation strategies include dynamic fees or auctioning the right to rebalance a liquidity pool.
- LVR-focused AMMs have yet to gain significant market share compared to Uniswap, raising doubts about their staying power, especially given the lack of moats around LVR solutions.
In this report, we explain what Loss Versus Rebalancing (LVR) is and what drives it, explore potential solutions, and determine whether implementing LVR mitigation can create a competitive advantage for AMMs.
What is Loss Versus Rebalancing (LVR)?
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Kinji formerly covered crypto at Morgan Stanley. His primary interests are DeFi, Ponzi's and unstable stablecoins.
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