Price Ticks

In a traditional standard liquidity model, the price moves along a continuous curve. By contrast, in a concentrated liquidity model, prices are discrete and divided into intervals called ticks. Each tick represents a fixed step in price movement, where moving up or down by one tick corresponds to a 0.01% change (1 basis point) in price at any point along the curve.

Ticks serve as the boundaries for liquidity positions. When a liquidity provider opens a position, they define both an upper and lower price tick that determines the active range of that position.

As swaps are executed and prices fluctuate, the smart contract consumes all available liquidity within the current tick interval before moving to the next. Once the price crosses into a new tick, the pool contract automatically activates any liquidity that lies within the newly active range, while liquidity outside that range becomes inactive. This ensures that liquidity distribution dynamically adjusts with market activity.

Although every trading pool in a concentrated liquidity protocol contains the same number of price ticks, only a portion of them are active in practice. There is a defined relationship between tick spacing and the swap fee tier in a concentrated liquidity smart contract. Specifically, the lower the fee tier, the closer together the active ticks can be. Conversely, higher fee tiers correspond to wider tick spacing.

For trading pairs that require greater price precision—such as stablecoin pairs—narrower tick spacing is particularly beneficial. With tighter intervals, swaps incur more moderate price impacts, which aligns perfectly with the needs of stablecoin pools where traders expect minimal deviation from a 1:1 exchange rate.