PDN Rebalance

Defination

PDN (Pseudo Delta Neutral) Imbalance Ratio indicates the deviation of a position from a market-neutral status, PDN Imbalance Ratio (PIR) is defined as follows:

(thank to Darkray)

where:

• NSA: Non-Stable Asset (SOL, ETH..)

• NSA in LP: the amount of NSA in total position.

Due to the mechanics of Constant Product LP,

• When PIR is positive, it means that there are now more NSA tokens being held as Debt (NSA Debt) than in the LP Position (NSA in LP). Since the number of NSA tokens held as Debt only changes due to the borrowing interest rather than its price movements, this implies that the price of the NSA token has risen which is why there will be fewer NSA tokens in the LP position.

• If PIR is negative, it means the NSA Debt is less than the NSA in LP. Similar to the Debt situation above, this implies that the price of the NSA token has fallen which is why there will be more NSA tokens in the LP position.

Reference:

Easy Rebalancing of a Pseudo-Delta Neutral Position on Solana’s Francium Protocol 2nd EditionMedium

PIR threshold is set to abs(2) by default to express if a position is market-neutral.