#### Discover more from Panoptic Research

# LP Profits: Staying "In-Range" on Uniswap v3

### How long does the price remain within a given range?

Liquidity provider positions in UniV3 only collect fees when the price is within that position's range. How long does the price remain within a given range? Let's find out!

🧵Caution: contains math 🤓

We will consider positions centered at the current price at time `T=0`

and monitor how long it takes the price to move a certain number of ticks up or down. In the example below, a position is minted on Jan. 1st 2022 and the price crossed `±2%`

, `±3%`

, `±5%`

, and `±10%`

in `<6`

days.

Waiting for the price to move even more, from `±50%`

to `±300%`

, it now takes more than 5 months for the price to drift by 11,000 ticks (the ETH price did go down by `3x`

YTD in May 2022). What's the relationship between the range and the first exit time? Let's look closer 👇

While crossing times do seem to converge for short exit times (see 10, 20, 30bps), it turns out that the average waiting time scales as the square of the range h:

I'm deriving why this relationship exists based on work by Andersen 2008 and @SinclairEuan 2014.

This `h^2`

law is a consequence of the price *ticks* following a Brownian Motion with normally distributed steps: in a BM, the average displacement after a time `t`

scales as `σ*t^2`

, where `σ=volatility`

. This relationship can be inverted to estimate `σ`

from average crossing times!

Can we use those first exit times to derive a "per tx" volatility? Kind of! 👇 Per tx data is very noisy (blue dots), but using the average over 10,000 tx reveals known volatile periods like Luna/3AC/FTX collapses, or macro events like the Merge and the start of the Ukraine war.

Key insights:

The average time spent within a range ±h scales as

`(h/σ)^2`

`E[first exit time]`

can be used to develop resilient and efficient volatility estimators (when on-chain`σFTE`

?)The volatility calculation in the ETH-USDC pool can highlight volatile macro events

Caveats/Questions:

Do this still hold if price ticks are not a Brownian motion (see quoted thread)

What about 30bps and 100bps pools?

Should the range be adjusted for different volatility environments?

What's the optimal range for a given

`σ`

?

Comment below with questions! 🤝

Like & Retweet & follow @Panoptic_xyz for more #ResearchBites and key updates!

👉Check out our GitHub repo

This content is for educational purposes only and should not be relied upon as financial advice.