Overview
Concentrated liquidity is an AMM design that lets providers concentrate capital within specific price ranges for higher capital efficiency. Uniswap v3 popularized the model. Providers earn more fees per unit of capital but take on more active-management risk.
How It Works
Instead of providing liquidity across the full price curve, a provider selects a range where they expect prices to trade. Capital in that range is used efficiently, earning higher fees. If prices move out of range, the position stops earning until adjusted.
Why It Matters
Concentrated liquidity dramatically improves capital efficiency, deepening liquidity at active price levels. It also shifts risk to providers, who must actively manage ranges. The model reshaped AMM design across DeFi.
Related Concepts
Concentrated Liquidity builds on AMMs and Liquidity Pools, and relates to Impermanent Loss and Slippage. It is central to modern DEX design.