02Core model

Liquidity placed around the market

Silo uses adaptive liquidity ranges as its design foundation. Rather than distributing all capital across one continuous curve, the market divides liquidity into discrete price bins. Each bin represents a price level where assets can be exchanged.

$202Ask inventory

$201Ask inventory

$200Active bin

$199Bid inventory

$198Bid inventory

The active bin

The current market price sits around an active bin. Trading uses inventory near that price first, then moves through neighboring bins as demand shifts. LPs generally have the greatest opportunity to earn fees when their liquidity is active, but capital near the market also faces more frequent conversion between assets.

What a bin holds

A bin's contents follow from where it sits relative to the market. Bins below the active price hold the quote asset, because that is what is needed to buy from a seller. Bins above hold the base asset, because that is what a buyer receives. Only the active bin holds both.

Below the marketQuote asset, waiting to buy the base asset if price falls to that level.

The active binBoth assets, in a mix that shifts as trades execute at that price.

Above the marketBase asset, waiting to be sold if price rises to that level.

This is why a position changes composition as the market passes through it, and why single-sided liquidity works at all. An LP holding only USDG can fund bins below the market without owning any of the base asset first.

It also explains a result that surprises LPs the first time they see it. A position can be fully converted without the LP doing anything and without any single dramatic move. A market drifting steadily upward through a range sells the base asset the whole way, bin by bin, and the LP finishes holding quote assets acquired at a series of increasing prices. Nothing went wrong. That is what supplying the ask side means, and the fees collected along the way are the compensation for it.

Why concentration matters

LPs can choose a relevant range instead of spreading capital across an extremely wide curve. This can put more deposited capital near the prices where trading occurs. Concentration can improve capital efficiency, but it also makes range selection and active position management more important.

Bin step

Bin step defines the distance between neighboring price levels. A small step places bins close together for fine-grained placement near the market. A large step covers a wider span with fewer levels. The step is set when a market is created and applies to every position in that market.

Small bin stepPrecise placement$199.50 · $200.00 · $200.50

Suits assets with a tight, well-referenced price and steady trading.

Large bin stepWide coverage$190 · $200 · $210

Suits volatile or thinly traded assets where price can move far between trades.

Bin step is a percentage, not a fixed amount

Bins are spaced geometrically. A bin step is a proportional distance, so each level sits a fixed percentage above the one beneath it rather than a fixed number of dollars. A step of 25 basis points means every bin is 0.25% above its neighbor, whether the asset trades at $2 or $2,000.

Step of 0.25%$200.00 · $200.50 · $201.00

Step of 5%$200.00 · $210.00 · $220.50

The consequence is that a market's step, not its price, determines how finely liquidity can be placed. It also fixes the tightest possible spread in that market, since the distance between the best bid bin and the best ask bin cannot be narrower than one step.

Moving between bins

Trading consumes inventory in the active bin first. When that bin is exhausted, the market moves to the next bin in the direction of the trade and continues there. A single large trade can cross several bins, and each crossing changes which positions are earning fees.

Crossing bins in a single trade

Inside one bin the price is constant, so a trade that fits within the active bin fills entirely at that price and the only cost is the fee. A larger trade exhausts the active bin, moves to the next, and fills the remainder there at a worse price. The rate the trader receives is the average across every bin the trade touched.

Fits in the active binA single price, with no impact beyond the fee.

Crosses two or three binsA blended price, modestly worse than the quote at the active bin.

Crosses many binsEach level fills worse than the last, and thin levels are consumed quickly.

Depth is therefore a question of how much sits in the bins next to the market, not how much sits in the pool overall. A market with large total TVL concentrated far from the current price can be shallower in practice than a smaller market with liquidity packed around the active bin.

Depth is also directional, and the two directions are supplied by different positions. Buying consumes the base asset held above the market; selling consumes the quote asset held below it. A market can be deep for buyers and thin for sellers at the same moment, which happens routinely after a sustained move in one direction has drained one side and left the other untouched.

Range width and management

A wide range covers more of the price space and needs less attention, but spreads capital thinly across levels that may never trade. A narrow range concentrates capital where trading happens now, and needs to be revisited when the market moves away from it. Neither is correct in general; the right width depends on the asset, the fee level, and how much management the LP intends to do.

Wide rangeFewer adjustments, lower capital efficiency, less time out of range.

Narrow rangeHigher capital efficiency when active, more frequent repositioning, more time out of range.