Rebalancing

Rebalancing is the process of changing a portfolio's composition or weights over time to keep it aligned with a target allocation or strategy. If a basket starts at 50/50 between two tokens and one outperforms, the weights drift, and rebalancing sells some of the winner to buy the laggard, restoring the target split. Traditional index funds do this on a schedule; onchain products range from actively rebalanced to never rebalanced at all.

Managed onchain products rebalance through governance or a designated manager. Reserve Protocol's DTFs, for example, are governed folios whose baskets can be adjusted over time. Rebalancing keeps a product tracking its stated strategy and lets it rotate out of assets that no longer fit, but it carries real costs: every rebalance pays trading fees and slippage, can leak value to arbitrageurs and MEV bots, and requires trusting whoever holds the power to change the basket, whether that is a manager, a multisig, or a token vote.

Immutable baskets take the opposite approach: the composition is fixed at creation and nobody can ever change it, so weights drift with market prices rather than being reset. The trade-off is adaptability for trust minimization. Holders of a fixed basket never face a surprise composition change, a governance attack, or hidden rebalancing costs, but they also cannot expect the product to drop a failing asset or chase a new narrative. Neither model is inherently better. A managed product asks you to trust a process; an immutable one asks you to accept a snapshot. Knowing which one you hold, and who can change it, is a basic diligence step before buying any basket product.