DeFi & Options
CLAMM Series 1: Introduction to CLAMMs
CLAMMeenis this, CLAMMeenis that… what the DEVIL are they waffling about?
Today, I, Nutoro, will go through one of the DeFi primitives that is key to understanding Dopex v2 (and is just nice to know).
CLAMMs (AKA Concentrated Liquidity Automated Market Makers)!
What is an AMM?
Before diving into CLAMMs it is important to understand what an AMM, or so-called “Automated Market Maker” is first.
DeFi has a lot of decentralized exchanges such as Camelot and Uniswap. What makes these unique is that anyone with a cryptographic currency wallet (i.e. you and I) can trade OR provide liquidity without relying on a centralized party.
This is cool because we can rely on code, rather than trust. Anything that occurs in a so-called “AMM” is pretty much predetermined as per how this code was written.
Beautiful and decentralized just like it should be.
What is a CLAMM?
CLAMMs are an AMM design choice that allow liquidity providers to specify a price range for which their tokens may be used.
Pictured here is an example of an ETH/USDC price range where the LP is willing to provide liquidity between $1,600 to $1,900.
What this means is that their liquidity may be used for trading between ETH and USDC between those two price points and that the LP can earn fees on all those swaps.
Very cool, very good, very nice - put your shekels to work via CLAMMs.
Why are CLAMMs important to Dopex?
Before going into any more details, I am going to make a bold unqualified statement:
“CLAMM positions are simply options that are not properly compensated.”
Bold. Big dick. Daring.
To prove this statement will be quite an ordeal but I will get it done in the next series of articles.
Firstly, I will cover exactly how CLAMMs work:
- Price ranges
- CLAMM ticks
- Composition of a tick
- Impermanent loss of a tick
Then I will go over why CLAMMs are options that not properly compensated:
- CLAMM ticks as options
- CLAMM fees vs. Option Premiums
Then I will cover how Dopex v2 transforms CLAMM liquidity into option liquidity:
- CLAMM <-> Dopex v2
- Removing Option Complexity with Dopex v2
Stay tuned, my beloved readers, a wealth of so-called “knowledge” awaits.