Liquidity Ticks
Last updated
Last updated
Ticks are unsigned, 128-bit identifiers that encode conditions on liquidity, including a maximum loan limit, duration index, and rate index. The Tick utility library is responsible for encoding and decoding ticks. Deposits are made into specific ticks by depositors, and liquidity is sourced from a selection of ticks to assemble the funds of a loan for borrowers. The ticks used in a loan become the tranches of the loan.
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Limit is a 120-bit value that imposes the maximum limit for funds sourced from the tick can be used in. Duration index is the maximum duration that funds sourced from the tick can be used for, and rate index is the interest rate tier associated with the funds. Duration index and rate index are indices into predetermined, discrete tiers that are assigned at Pool initialization. Finally, the type field is currently set to zero for absolute loan limit ticks.
Ticks can be combined in an ascending fashion to source incrementally larger principals for loans. Each tick used to source funds for a loan must be strictly larger than the previous, following the order implied from the bit encoding: limit, followed by duration, followed by rate.
Example of a possible configuration of durations, rates, and ticks:
| # | Tick (Loan Limit, Duration, Rate) | Liquidity Available |
|---|---|---|
To assemble a 30 day loan, ticks 1, 2, 3 can be used to create a 15 ETH loan that is organized as follows: 2.5 ETH from tick 1, 2.5 ETH from tick 2, 10 ETH from tick 3. The interest for the loan would be determined by applying the 10%, 10%, and 30% interest rate tiers to the amounts used from each tick and the loan duration.
Principal=2.5 ETH+2.5 ETH+10 ETH=15 ETHPrincipal=2.5 ETH+2.5 ETH+10 ETH=15 ETH
Interest=10% APR×2.5 ETH+10% APR×2.5 ETH+30% APR×10 ETH=0.287671 ETHInterest=10% APR×2.5 ETH+10% APR×2.5 ETH+30% APR×10 ETH=0.287671 ETH
Repayment=Principal+Interest=15.287671 ETHRepayment=Principal+Interest=15.287671 ETH
Note that ticks 4, 5, 6 are ineligible for a 30 day loan, because the loan duration exceeds their maximum duration. A 14 day loan can be assembled from ticks 1-4, and a 7 day loan from ticks 1-6. Longer duration ticks can be used for shorter duration loans.
The loan limit imposes an upper bound on the amount of funds that can be used from a tick, as well as the maximum position of the tick in the capital stack for a loan, but the actual amount pulled from each tick depends on the cumulative amount built up from previous ticks.
Lowers ticks have seniority over higher ones in a loan, meaning that if a loan is liquidated and the liquidation proceeds fall short of the loan repayment, lower ticks will be repaid before higher ones. However, higher ticks will tend to receive greater interest than lower ones, based on the interest distribution described in the Interest Rate Models section.
Being an oracleless protocol, the Pool does not make assumptions or impose restrictions on the maximum or safe loan limits based on a collateral's current market value. Instead, depositors choose loan limits corresponding to the LTV and risk they are comfortable lending at. This means that it is possible for a depositor to create a very risky, high-LTV position to try to capture more interest, or to create a very conservative, low-LTV position that is underutilized.
The job of selecting ticks for a loan is a process known as tick routing, and is accomplished by the MetaStreet SDK. The tick routing algorithm builds a route through the ticks up to a specified loan amount, choosing the best incremental tick by cost of capital, and prunes the route to a maximum number of ticks by greatest capital contribution. The SDK API is described in more detail in the SDK section.
| # | Tick (Loan Limit, Duration, Rate) | Sourced |
|---|---|---|
Durations
30 days
14 days
7 days
Rates
10%
30%
50%
6
(50 ETH, 7 days, 50%)
20 ETH
5
(40 ETH, 7 days, 50%)
30 ETH
4
(30 ETH, 14 days, 30%)
30 ETH
3
(15 ETH, 30 days, 30%)
50 ETH
2
(5 ETH, 30 days, 10%)
100 ETH
1
(2.5 ETH, 30 days, 10%)
150 ETH
3
(15 ETH, 30 days, 30%)
10 ETH
2
(5 ETH, 30 days, 10%)
2.5 ETH
1
(2.5 ETH, 30 days, 10%)
2.5 ETH