DeFi & Options
CLAMM Series 3: Ticks Explained
Oh you blood-sucking vermin… oh and some ticks too!
Last article I, Nutoro, supreme leader of Diamond Pepes Pty Ltd. and all that is good in this wretched earth, covered CLAMM price ranges.
An interesting take away was that CLAMM LPs only earn fees from liquidity that is in-range.
Now it is time to get even more specific about this liquidity by talking about its smallest functional unit - the proverbial “tick”
Back to the Price Range
In our first article on Price Ranges, we showed a position providing ETH-USDC liquidity from $1,600-1,900 which looks like this:
We also said that if $ETH was trading at $1,775, since the price is within the price-range, that position is said to be in-range.
However, while the position itself is in-range, this does NOT mean the entirety of the liquidity is active.
Rather, only the portion of liquidity - specifically, the tick - where the current spot price sits is actually active and earning fees!
We can take any CLAMM liquidity in a price range and represent it as its underlying ticks.
From the LP’s perspective, while they chose a price range from $1,600-1,900 their position (Position 1) is actually composed of evenly distributed liquidity across every tick within their chosen price range.
If we add in the current spot price, it is only the tick in which this price resides that is currently active.
This logic can be extended to any price range - such as this narrow bloke below (price range = $1,700-1,800).
Since the liquidity here is more concentrated, the active tick constitutes a larger proportion of total liquidity meaning a greater share of fees for the LP!
Regardless, a large proportion of ticks (and thus liquidity) is out-of-range and not doing anything (mayhaps this is something that Dopex v2 can change hmm).
Tick as a Price Range
Another interesting thing is that the tick itself is also technically just a price range.
In our example below, we have liquidity in the tick which ranges from $1,775-1,780.
Now let’s take this one step further.
Price Range as Sum of Ticks
Now we’ve said that we can break down a price range into individual ticks. Looking at this in reverse, it also means that you can build a price range depositing equal liquidity into every included.
This price range from $1,700-1,800?
This sum of individual ticks from [$1,700-1,705] + [$1,705-1,710] + … + [$1,795-1,800]?
They are exactly equal!
This is a very important concept to wrap your noggin around when we dive into how Dopex v2 works… but that’s for the next article.
Another foray into the intriguing land of CLAMMs and so-called “ticks”!
To summarize our findings from this lesson:
- CLAMM price ranges can be broken down into individual price ticks
- The functional unit within a price range is the tick
- Only one tick is active at any given time - all other ticks are inactive
- The tick is itself a price range
- A price range can be looked at as an aggregation of all ticks that reside within it
Next article we will cover the composition of assets within a given price tick.
Fascinating stuff indeed.
Until next time, my beloved readers.
Dopex is a decentralized options protocol that aims to maximize liquidity, minimize losses for option writers and maximize gains for option buyers — all in a passive manner. Dopex uses option pools to allow anyone to earn a yield passively. Offering value to both option sellers and buyers by ensuring fair and optimized option prices across all strike prices and expiries. This is thanks to our own innovative and state-of-the-art option pricing model that replicates volatility smiles.
Follow our official social media accounts and visit our website to stay up to date with everything Dopex.
Be careful of fake Telegram groups, Discord servers and Twitter accounts trying to impersonate Dopex.