Multi-Pool with Different Tick Spacing
Last updated
Last updated
When adding liquidity to VAELOB Pools, you have Multi-Pool options with different tick spacings for each trading pair. Different tick spacing pools perform differently under varying market volatility. This allows you to adjust your strategy based on market volatility.
Here you may find the definition for tick spacings:
We’ll explain how this impacts your earnings and how you can leverage these new LP options to gain more control over your investment strategy.
Through this example, we will demonstrate how different tick spacings impact your LP strategy:
Example: You want to provide liquidity in the ETH/USDT pool within the price range of $2,500 to $3,000 and have $1,000 in total. You are choosing between 2 pools with different tick spacing.
Number of ticks
500
10
Liquidity per tick
$2
$100
Liquidity distribution
Providing liquidity at every $1 price interval.
Providing liquidity at every $50 price interval.
Earning potential
Active earning in stable markets, but earning less spread reward in volatile markets
Less active in stable markets, but have higher potential in volatile markets
Minimum capital requirement
Higher
Lower
🔔Your choice of tick spacing pool should align with your expectations of market volatility.
LPs Earning = Trading Fee + Spread Reward
When a buy order from the AMM is executed, VAELOB LPs collect trading fees, which are paid by the trader in USDT. When an AMM's sell order is filled, VAELOB LPs collect both trading fees and spread rewards.
The spread reward is realized when the price moves across the tick spacing from the lower bound upwards. This occurs when VAELOB successfully buys ETH at the lower tick price and sells it at the higher tick price within the defined tick spacing. LPs profit from the price difference (spread) between these two ticks.
Small tick spacing pools may yield better results due to frequent price movements within narrow ranges, while large tick spacing pools tend to have better spread reward performance in volatile markets. The wider intervals allow for greater price movements within each tick, increasing the potential for LPs to capitalize on significant price swings by capturing larger spreads between the buy and sell orders.
The minimum requirement for liquidity (within range) = The minimum trade amount x Total Tick Amount (in range)
Depending on how much capital you’re willing to invest, cover the rational price range of the trading pair to reduce impermanent loss. The new tick spacing options allow you to tailor your LP strategy. You can choose different tick spacings based on changing market conditions or your personal investment goals.
In , we've demonstrated that:
