> ## Documentation Index
> Fetch the complete documentation index at: https://docs.dionysus.finance/llms.txt
> Use this file to discover all available pages before exploring further.

# Rebalancing cost (gamma)

> The structural drag of concentrated liquidity, stated plainly.

Concentrated liquidity has a cost baked into its geometry, and most LP marketing pretends otherwise. We'd rather you understand it.

## The mechanism

A liquidity position automatically sells the asset that is rising and accumulates the one that is falling — that's what providing liquidity *is*. When price leaves your range and the position is re-centred, that adverse inventory shift gets locked in. Do this over and over in a trending or whipsawing market and you accumulate a real, structural drag. It is the concentrated-liquidity cousin of impermanent loss, and it scales with volatility and with how often you rebalance.

## The consequence

**A concentrated-liquidity strategy only makes sense where yield is rich enough to outrun the drag.** This single fact drives most of the system's design:

* The [universe screen](/strategies/how-pools-are-chosen) ranks pools by whether their sustained emissions and fees actually clear the bar — not by headline APR.
* The rebalancing policy treats every re-centre as a cost to be justified, never a hygiene task. Whether, when and how far to re-centre is decided by rules tuned on live production data (closed source — this policy is a core part of what you're paying the fee for).
* Rebalancing costs are booked into **strategy delta**, so the drag is visible in your numbers rather than smuggled into "market movement."

## What you should take away

In quiet, range-bound markets the drag is small and the yield compounds. In violent trends it grows, and a pool can turn negative-sum for LPs even while emissions flow. The agent's job is to notice that before it eats your yield — by widening, pausing, or [rotating](/agent/rotate) away — but no policy reduces the cost to zero. If someone tells you theirs does, they're selling something.