A Tick-by-Tick Solution for Concentrated Liquidity Provisioning

ArXiv ID: 2405.18728 “View on arXiv”

Authors: Unknown

Abstract

Automated market makers with concentrated liquidity capabilities are programmable at the tick level. The maximization of earned fees, plus depreciated reserves, is a convex optimization problem whose vector solution gives the best provision of liquidity at each tick under a given set of parameter estimates for swap volume and price volatility. Surprisingly, early results show that concentrating liquidity around the current price is usually not the best strategy.

Keywords: Automated Market Makers, Liquidity Provision, Convex Optimization, Decentralized Exchanges, Market Making

Complexity vs Empirical Score

• Math Complexity: 7.5/10
• Empirical Rigor: 2.0/10
• Quadrant: Lab Rats
• Why: The paper employs advanced convex optimization and water-filling algorithms, but lacks backtest results, statistical metrics, or production-ready implementation details, focusing instead on theoretical problem formulation.

  flowchart TD
    A["Research Goal: Maximize fees & reserves<br>in CLMM liquidity provision"] --> B["Model as<br>Convex Optimization Problem"]
    B --> C["Inputs: Swap Volume &<br>Price Volatility Estimates"]
    C --> D["Compute: Optimal Tick-by-Tick<br>Liquidity Distribution"]
    D --> E["Outcome 1: Liquidity is<br>not best concentrated at current price"]
    D --> F["Outcome 2: Programmable tick-level<br>solution for fee maximization"]