Introducing Ticks
In previous articles, we introduced price ranges in CLAMMs, emphasising that liquidity providers (LPs) earn fees only from liquidity actively within the designated range.
The Concept of Ticks
Each CLAMM liquidity position within a price range is comprised of discrete segments known as ticks. Ticks represent the smallest functional unit of liquidity in a CLAMM, each corresponding to a specific price point within the range.
For instance, consider a CLAMM position providing ETH/USDC liquidity between $1,600 and $1,900. If the trading price of ETH is $1,775, the position is considered "in-range." However, only the liquidity within the tick where the spot price of $1,775 falls is actively earning fees.
Visualising Ticks
Imagine liquidity distributed evenly across each tick within the price range of $1,600 to $1,900. When the spot price is $1,775, only the specific tick associated with this price is active, while the other ticks remain inactive but ready to activate if the price moves into their range.
A narrower price range, such as $1,700 to $1,800, concentrates liquidity further, potentially increasing fee earnings from the active tick as a larger proportion of total liquidity is engaged at any given price within this range.
Ticks as Price Ranges
Each tick functions like a miniature price range. For instance, a tick might represent a range from $1,775 to $1,780. This precise segmentation allows for a focused and efficient use of liquidity, optimising earnings from trading fees.
Price Range as a Sum of Ticks
The overall price range of a CLAMM can be seen as the sum of its constituent ticks. For example, a price range of $1,700 to $1,800 is effectively an aggregation of all ticks between these prices, such as $1,700 to $1,705, $1,705 to $1,710, continuing up to $1,795 to $1,800.
Summary and Implications for Stryke
Understanding the role and function of ticks within CLAMMs is essential for leveraging Stryke's enhancements. This knowledge enables LPs to manage their liquidity strategically to maximise fee earnings while minimising inactive capital.
In our next article, we will explore the composition of assets within a given price tick, continuing to unravel the complexities of CLAMMs and their significance in decentralised finance.
About Stryke
Stryke is a decentralised options protocol that focuses on maximising liquidity and enhancing gains for option buyers while minimising losses for option writers—all in a passive approach.Stryke employs option pools that enable anyone to effortlessly earn yield. The protocol provides value to both option sellers and buyers by ensuring equitable and optimised prices for options at various strike prices and expiries, achieved through our proprietary, cutting-edge option pricing model designed to mirror volatility smiles.
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