Rebalancing of $Play

There has been some discussion in discord of rebalancing $Play, as it currently has >40% of the token weight (down from 50’s yesterday). To put this in perspective, AXS original allocation was ~8%.
Just wanted to start a discussion on here about if/when a rebalance should happen. Personally think AXS as a current ‘winner’, shouldn’t be entirely sold off to buy current cheaper coins, as it is likely priced higher for a reason (high adoption and high revenue). That said, having $Play be >40% weighted to one token is not great either. I would move for a rebalance to have AXS reduced to <20%, but happy for someone more knowledgably to run some numbers here.

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Agree, rebalancing seems reasonable. Maybe we should distribute between MANA, SAND, ENJ, and UOS, with a small boost on the last one as it seems to be slowly incresing for the last month.
Yet, I would get someone moreknowledgeable to drive a better informed decision

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Hey thanks for proposing this. I personally see both pros and cons of performing a rebalancing during a sort of hype period (relaying here an interesting piece on AXS previously shared by @Cass), but yet agree that the current uneven allocations look too skewed towards recent runners-up.

By applying the same methodology followed to define the initial $PLAY allocation (30days adjusted Market Cap) we would get the numbers below, where the last column highlights the rebalancing effect vs current $PLAY allocation.

Data below, waiting for community feedback.
Definitely open to discuss different weights for this rebalancing.

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I’ve long been a proponent of declaring some principles for rebalancing.

  • AMMs rebalance constantly
  • Some traditional index funds do a version of this by rebalancing whenever allocations drift a certain % away from the index amount
  • Some traditional index funds rebalance once a quarter or once a year regardless of whether the allocations have large or small drifts
  • Many traditional indexes that define the target allocations for index funds only change their target allocations once a year
  • Some traditional funds do not follow indexes and instead update positions to take advantage of internal ideas & research in search of alpha

What are we going for?

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I think applying the full delta rebalancing in the table @gabo shared would be too extreme a change in weights. Using an exponentially weighted moving average (EWMA) would weight recent prices more heavily and lower the delta.

Alternatively, weight the current price with the 30-day average by some ratio (eg, 60%/40%). So for example for AXS, using 60% AS-IS and 40% 30-days adjusted market cap: results in a target weight of 31.68% using the values in the table.

My main concern is a kind of thrashing where the index sells off winners, but then needs to rebalance back into them later if they continue seeing exponential growth. I expect the PLAY pie will eventually be dominated by a couple winners that nail the tokenomics and “catch lightning in a bottle” like Fortnite or World of Warcraft. I’ll echo that the article @Cass shared seems particularly well-researched and makes a compelling bullish case for Axie Infinity.

I also think 40% is not too unreasonable an allocation. It’s not (yet) as bad as SUSHI weighted as 60% of YPIE. But perhaps there should be some rules for rebalancing when a single asset becomes 40%+ of the index.

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agree with @fairshare . we want the winners to run so don’t want to cut too much–especially after the drawdown of the last few days. over 40% sounds like a good time to rebalance. maybe take anything that hits the 50% mark down to 40% and distribute to the other allocations. that way you’re selling pumps.

Reading this yesterday I agreed with the thinking posted above. But I also checked the Axie chart, and today I see that it made a new high, now at $30.31. Based on that I’d suggest we wait and see how it runs. This could be another big wave and afaik rebalancing is like cashing out. Better to do that when it looks like Axie has topped or plateaued.

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Very much in line with your reasoning :ok_hand: