🆕Precision Pools

Discover the mechanics of Precision Pools and the benefits of providing liquidity on Ociswap

What is a Precision Pool?

Ociswap's Precision Pool (PP) lets users concentrate their liquidity within specific price ranges. This allows users to strategically target where their funds are utilized in the market.

These pools can be more efficient because liquidity isn't wasted on wide price ranges where little to no trading activity happens. Users have the flexibility to adjust their price ranges as the market changes, allowing them to react to new information or trends.

While PP can offer higher fee earnings due to increased capital efficiency, it also potentially increases the risk of impermanent loss if the market price moves significantly within or outside these chosen ranges. Learn more.

Precision Pools Features

• Swaps: The PP uses a Constant Product Automated Market Maker formula to create a market and calculate prices and trading outputs.

• Liquidity Provider Fees: The PP imposes fees upon swap execution, with the specific trading fee rate established during the liquidity pool's creation. These fees can be configured from 0% to 10%. All fees are awarded to the liquidity providers and can be claimed. Auto-compounding will be introduced at a later stage.

• 🔜 Price Oracle: On-ledger pool-based oracles provide users with accurate and tamper-resistant price data. The oracle calculates the price of tokens based on the trading dynamics and liquidity ratios within these pools.

• Hooks: Users can execute custom code before and after certain events within the liquidity pool, such as swaps or liquidity updates. This capability allows for a wide range of innovative applications and functionalities on Ociswap. Learn more.

• Flash Loans: Users may borrow assets from a liquidity pool without providing collateral, under the condition that the loan is borrowed and repaid within the same transaction. Flash loans allow users to capitalize on discrepancies in prices across different exchanges (arbitrage), swap one collateral type for another without closing a position (collateral swap), or pay off debts to avoid liquidation (self-liquidation).

• Imbalanced Ratios: Users can customize the asset ratio within a pool, which can range from 80/20 to 98/2 or any other ratio. This enables liquidity providers to have more control over their exposure to specific assets.

How do Precision Pools work?

Ticks

To understand the design of the PP, it's crucial to grasp the concept of so-called ticks. This term refers to specific price points within a trading pair's price range. Ticks play a role in calculating the pool's price at any given moment, how deep the liquidity is, and the impact trades have on token prices.

Ticks are required for liquidity providers to target their liquidity more precisely, as they're used to define the boundaries of the price intervals where liquidity can be concentrated in liquidity positions. When a position is created, the provider must choose the lower and upper tick that will represent their position's boundary.

Active Liquidity and Management

Liquidity becomes 'active' or 'inactive' as the market price crosses tick boundaries. This is marked as 'in range' or 'out of range' within the Ociswap interface. This mechanism ensures that liquidity is only engaged and earning fees when within the specified tick-range set by the provider.

As price moves in one direction, liquidity providers gain more of the one asset as swappers demand the other, until their entire liquidity consists of only one asset. If the price ever reenters the interval, the liquidity becomes active again.

Managing ticks (i.e., deciding where to place liquidity in relation to existing and potential future ticks) is a strategic consideration for liquidity providers seeking to optimize their returns and manage their exposure to price volatility.

More detailed information on Ociswap's Precision Pools is in the works. Follow our socials to be notified.