What is a Tick?
A tick is the fundamental price unit in concentrated liquidity AMMs like Uniswap V3. Ticks represent discrete price points where liquidity positions can begin or end. The price space is divided into ticks at regular percentage intervals, and LPs define their positions by selecting tick boundaries rather than arbitrary prices. Swaps move the price from tick to tick as liquidity is consumed.
Tick Spacing and Precision
Ticks are numbered integers, with each tick representing a price approximately 0.01% (1 basis point) different from adjacent ticks. However, not all ticks are usable for positions. Tick spacing varies by pool fee tier to balance precision against gas costs.
For Uniswap V3:
- 0.01% fee tier: 1 tick spacing (maximum precision)
- 0.05% fee tier: 10 tick spacing
- 0.30% fee tier: 60 tick spacing
- 1.00% fee tier: 200 tick spacing
Higher fee tiers have wider spacing because they're typically used for volatile pairs where extreme precision matters less. Lower fee tiers (stablecoins) allow finer positioning.
How Swaps Use Ticks
During a swap, the AMM moves through ticks sequentially. At each tick boundary where positions start or end, it checks whether net liquidity changes and adjusts active liquidity accordingly. The swap continues through ticks until the full input amount is traded or available liquidity is exhausted.
This tick-by-tick processing enables concentrated liquidity without unlimited computation. Gas costs scale with number of initialized tick boundaries crossed, not number of individual positions. An important efficiency.
LP Position Boundaries
LPs specify positions using lower and upper tick values. The position earns fees only when current price tick falls within these boundaries. Price movement outside deactivates the position (no fees, but also no additional IL).
Tick selection determines position width. Narrow positions (few ticks) maximize capital efficiency but risk going out of range quickly. Wide positions capture more price movement with lower efficiency.
Technical Implementation
Each initialized tick stores the net liquidity delta. How much liquidity enters or exits when price crosses that tick. As price moves, active liquidity updates by summing these deltas. This elegant data structure enables efficient state tracking.