Concentrated Liquidity

The Price Coordinate System

Price in the protocol moves in discrete integer steps called ticks. The principle is the same as compound interest — just as a deposit compounds by its interest rate on the prior principal each year, price compounds by 0.01% on the prior price with every tick. Each tick multiplies the price by 1.0001, so the price at any tick is 1.0001 raised to that tick's number.

As a result, one tick always means "0.01% relative to the prior price," whether the asset trades at 1 or at 1,000,000. This coordinate becomes the reference for every downstream calculation — ranges, execution prices, and fee settlement.

Positioning Liquidity

Definition of a Position

When an LP deposits capital, they specify a price range alongside it — a lower bound and an upper bound. That range plus the capital size together form a Position. Choosing 1900 to 2100 is a way of saying "I will only be a counterparty between these two prices."

A position cycles through three states depending on where price sits:

• Below the range. It holds only the first token and sits idle.
• Inside the range. It holds both tokens and earns a fee on every settlement.
• Above the range. It holds only the second token and sits idle.

No administrator intervenes. The switch happens automatically as price moves.

Token Amount Calculation and Boundary Accounting

The token amount required to open a position is not an approximation — it is computed exactly from the price curve, so that both tokens are consumed exactly once price fully crosses the range.

The protocol also records, at each boundary tick, exactly how much liquidity should switch on or off when price crosses it. Liquidity is added as price enters a position's range and removed as it leaves, which guarantees correct adjustment even when many positions' ranges overlap.

Range Width and Capital Efficiency

The narrower the range, the denser the capital and the more fees it earns. Against the full range, a band of ±10% around the current price runs at roughly 10x the density; ±1% runs at roughly 100x.

The trade-off is that narrower ranges carry more risk of price leaving them. The width an LP chooses is a dial between return and stability.

Fee Distribution Across Overlapping Ranges

Different LPs are free to deposit into overlapping ranges. Thanks to the boundary accounting above, fees still split exactly according to each LP's share, and no LP's position can encroach on another's.