CLAMM Series 8: Dopefy Your Ticks
Oh yeah baby this is what we came for
The past few lessons covered some key points:
- CLAMM positions can be broken into ticks
- CLAMM ticks have identical payoffs to options
- CLAMM trading fees are significantly undercompensated compared to option premiums
- CLAMM ranges are inefficient since only a single tick can be active (and fee-earning) at a given time
We will now put this all together to show you how Dopex v2 will transform your CLAMM into a behemoth of extra yield with the exact same payoff profile!
1. Deposit your CLAMM position
While we will start with Uniswap v3, Dopex v2 will eventually accept any CLAMM position.
A CLAMM range from $1,600-1,900 on ETH/USDC will look something like this..
Let’s go ahead and deposit that on Dopex v2.
2. Dopex v2 converts your CLAMM into Ticks
Now the range itself is not of much use for us - CLAMM positions are only equivalent to option positions at the tick.
When you deposit your CLAMM onto Dopex, your position will be withdrawn and redeposited into the underlying ticks. From Ticks Explained, we know that the sum of liquidity in the ticks is exactly the same as liquidity of the range.
Very good.
3. Option Buyers purchase your tick as options
When an option buyer wants to purchase an option, the tick with tick price equal to their strike price will be withdrawn into the underlying. The option buyer will pay the CLAMM LP
Here an option buyer has purchased 1 $ETH call option with a strike price of $1,750 and Dopex v2 will withdraw the 1 underlying $ETH. You will earn an upfront premium but forgo trading fees if trading volume occurs in a utilized tick.
Since your entire range has been broken down, technically any tick can be used as option liquidity.
This means liquidity throughout your entire range can earn premiums. When we consider that only 1 tick is usually active at any time, this is way more capital efficient than a standard CLAMM.
4. Settlement
Settlement depends on whether the option is ITM so we have two scenarios:
Option OTM
If the option is OTM, the buyer receives nothing.
Dopex v2 is holding 1 $ETH.
Option ITM
If the option is ITM, the buyer receives the difference between the strike price and spot price. If the spot price is $1,900, we simply sell the 1 $ETH for 1,900 $USDC and the option buyer pockets $150 (1,900 - 1,750).
Dopex v2 now holds 1,750 $USDC.
5. CLAMM Repayment
To repay the CLAMM, we have to return 1 $ETH or the value of the tick, in our case 1,750 $USDC. Again, we have two scenarios:
Spot Price < Tick Price
If the spot price is lower than the tick price, we have to return 1 $ETH.
In this scenario, the equivalent option is OTM and Dopex v2 is holding 1 $ETH.
We simply return 1 $ETH to the CLAMM position and re-LP it into its original tick.
Spot Price > Tick Price
If the spot price is higher than the tick price, we have to return the tick price of 1,750 $USDC.
In this scenario, the equivalent option is ITM and Dopex v2 is holding 1,750 $USDC after paying settlement to option buyers.
This time we simply return the leftover 1,750 $USDC to the CLAMM position and re-LP it into its original tick.
It is that simple!
Closing Comments
Without any option knowledge needed, Dopex v2 transforms your CLAMM positions into potential option liquidity. This means you earn premiums rather than fees on in-range liquidity and premiums where no fees would be earned on out-of-range liquidity.
Simply deposit your CLAMM positions and Dopex v2 contracts will handle the rest for you!
This concludes CEO’s little monologue into CLAMMs and how they tie into Dopex v2.
Next lesson we will go into something that is just cool to know - how Dopex v2 allows for dynamic option types with the same set of liquidity.
Until next time, my beloved readers.
Warm regards,
CEO
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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