How Does a Portfolio Rebalancing Strategy Compare to Providing Liquidity in a High-Volatility Environment?

A portfolio rebalancing strategy typically involves selling high-performing assets to buy underperforming ones to maintain a target allocation. This is similar to what an AMM does automatically through arbitrage, but the LP in the AMM pays a hidden cost (impermanent loss) instead of explicitly trading.

In high volatility, the AMM's rebalancing is more frequent, leading to higher IL. An explicit rebalancing strategy can be optimized for taxes or timing, potentially offering better control.