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I've seen a couple of application notes recommend keeping led drive supply and ADC supplies separate. To me it seems that since the LED will illuminate the photodiode that ADC is reading anyway, keeping this two close would make sense. Including the reference voltage for current source and the reference voltage for ADC.

I'm referring to this datasheet. Page 78 "11.1 Layout Guidelines" http://www.ti.com/lit/ds/symlink/afe4400.pdf

TXP, TXN are fast-switching lines and should be routed away from sensitive reference lines as well as from the INP, INN inputs.

Is is possible that this are just general recommendations and the author did not consider this special case where LED illuminates the photodiode from the same circuit? Or is this to prevent oscillations.

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While you do have a point that it might make sense to compensate for variations in the LED brightness caused by power supply fluctuations, the hint is very important to adhere to. The LED is not just lighting all the time, but it is pulsed. The circuit very likely uses lock-in like techniques to filter the photodiode signal for the parts of it that are in response to the LED pulses. It is extremely important that the feedback from driving pulses to the LED to observing those pulses at the photodiode is purely optical, because otherwise the optical signal us obscured by the electric cross-talk. If you don't decouple the LED supply sufficiently from the detector supply, you will get electrical feedback as well because the supply voltage will surely drop a bit when you pulse the LED.

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    \$\begingroup\$ There's a verb missing from your sentence "It is extremely important ..." \$\endgroup\$ – pjc50 Aug 10 '16 at 8:32
  • \$\begingroup\$ That makes sense. It's crucial if you want to do ambient light suppression (hence the lock in amp). \$\endgroup\$ – pkuhar Aug 12 '16 at 1:07

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