CLAMM Series 3: Ticks Explained

CLAMM Series 3: Ticks Explained

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CLAMM Series 3: Understanding Ticks in Price Ranges

In the previous articles, we introduced the concept of price ranges in CLAMMs, highlighting that liquidity providers (LPs) earn fees only from the liquidity that is 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. These 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 to be 'in-range.' However, it's crucial to understand that not all the liquidity is active; only the liquidity within the tick where the spot price of $1,775 falls is earning fees.

Visualising Ticks

Imagine the liquidity as distributed evenly across every tick within the chosen price range from $1,600 to $1,900. When the spot price is at $1,775, only the specific tick associated with this price is active, while the remainder of the ticks remain inactive but ready to become active if the price moves into their range.

A narrower price range, such as $1,700 to $1,800, concentrates the liquidity further, potentially increasing the fee earnings from the active tick because a larger proportion of the total liquidity is engaged at any given price within this range.

Ticks as Price Ranges

In essence, each tick can be considered a miniature price range itself. For example, a tick might represent a range from $1,775 to $1,780. This precise segmentation allows for a focused and efficient use of liquidity, optimisiu yrfding the 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 all its constituent ticks. For example, a price range of $1,700 to $1,800 is effectively the aggregation of all ticks between these two prices, such as $1,700 to $1,705, $1,705 to $1,710, and so on up to $1,795 to $1,800.

Summary and Implications for Stryke

Understanding the role and function of ticks within CLAMMs is critical for leveraging the Stryke enhancements. This understanding allows LPs to strategically manage their liquidity 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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