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What does the "Minimum bid exceeds 1% of the current Set's market cap" error mean?
What does the "Minimum bid exceeds 1% of the current Set's market cap" error mean?

Understand minimum bids, and how it affects auctions.

Written by Felix Feng
Updated over a week ago

A minimum bid is the minimum unit of a Set that can be rebalanced in a Set's rebalance auction. In certain cases the size of the minimum bid can exceed 1% of the total market cap of the Set, resulting in a non-negligible amount of value that will be unable to be rebalanced. For example, if a Set has a market cap of $15, and the minimum bid was valued at $8, it would leave $7 of un-rebalanced capital inside of the Set. That un-rebalanced value is still accounted to the Set holders, and will be retrievable after a subsequent rebalance that creates a more precise minimum bid in the next rebalance, but during the time the Set is weighted in the new allocation, it will seem as if the market cap had gone down 46.66667% in this scenario where $7 out of $15 are un-rebalanced.

If a scenario like this were to happen, anyone who bought into the Set afterwards would dilute the value of the current holders’ Sets since it reduces the price per Set allowing new users to buy in at a discount.

Minimum bids usually range from a few cents to $10, with very rare cases ranging to over $100.

In order to avoid a situation where a large portion of market cap has disappeared after a rebalance, the minimum bid size is checked against the market cap before executing a rebalance, and if the amount of value that could go unaccounted for exceeds 1%, the rebalance is not executed. Even if a smart contract call to rebalance were to occur where greater than 1% of the market cap wouldn't be rebalanced, the transaction would revert. This is to ensure that users don't see a sharp unnecessary drop in market cap after a rebalance, and Set creators don't look like they've made a bad trade.

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