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Concentrated Liquidity

A deep dive into V3 concentrated liquidity mechanics and strategies.

Concept Overview​

Concentrated liquidity allows you to provide liquidity within a specific price range, rather than from 0 to infinity.

Traditional AMM (V2)​

Price: 0 ──────────────────────────────────────────────── ∞
Liquidity: |═══════════════════════════════════════════|
           All liquidity across all prices

Concentrated Liquidity (V3)​

Price: 0 ──────────●──────────────────────●────────────── ∞
Liquidity:        ╔═══════════════════╗
                  Only this range earns fees

Key Terms​

Ticks​

Ticks are discrete price points in V3:

  • Each tick represents a specific price
  • Spacing depends on fee tier
  • Provide granularity for range orders

Fee Tiers​

TierTick SpacingUse Case
0.01%1Stablecoins
0.05%10Similar assets
0.30%60Standard pairs
1.00%200Exotic pairs
10.00%2000Volatile pairs

Position​

A position is your liquidity commitment:

  • Has a token pair
  • Has a fee tier
  • Has a price range
  • Tracks accrued fees

Creating a Position​

Basic Mode​

  1. Select V3 mode
  2. Choose token pair
  3. Choose fee tier
  4. Enter amounts
  5. Select price range
  6. Review APR
  7. Add liquidity

Price Range Selection​

Full Range​

  • Entire price spectrum
  • Like V2
  • Lower returns but always in range

Custom Range​

Determine your range:

Lower Bound = Current Price × (1 - Range%)
Upper Bound = Current Price × (1 + Range%)

Examples at $1.00:

RangeLowerUpper
±10%$0.90$1.10
±25%$0.75$1.25
±50%$0.50$1.50

The Math​

Concentration Multiplier​

Your effective TVL increases with concentration:

Multiplier = (Upper - Lower) / (Upper × Lower - Lower × Lower)

At 10x concentration:

  • Your $100 acts like $1,000
  • You earn fees on $1,000
  • But only when price is in range

Fee Calculation​

Fees earned within range:

Fees = (Volume in Range × Fee Tier) × (Your Liquidity / Total in Range)

Strategies​

Wide Range (Conservative)​

  • Range: ±50% or more
  • Risk: Low, price likely in range
  • Returns: Lower than narrow range

Narrow Range (Aggressive)​

  • Range: ±5% or less
  • Risk: High, easy to exit range
  • Returns: Much higher when in range

Active Management​

  1. Monitor price daily
  2. Adjust range as price moves
  3. Collect fees regularly
  4. Re-deposit when out of range

Pool Health​

The interface shows pool health:

StatusMeaningAction
GreenIn rangeContinue
YellowNear edgeConsider adjusting
RedOut of rangeMust adjust

Impermanent Loss​

In Range​

When price stays in range:

  • Earn fees on full concentration
  • Impermanent loss is manageable

Out of Range​

When price exits range:

  • Stop earning fees
  • Impermanent loss increases
  • Consider adjusting range

Best Practices​

  1. Start Wide - Use ±25% for first position
  2. Monitor - Check position daily
  3. Adjust - Move range with price
  4. Collect - Claim fees regularly
  5. Diversify - Multiple positions

Advanced Tips​

Multiple Positions​

Create multiple positions:

  • One wide for stability
  • One narrow for returns
  • One at current price

Rebalancing​

Move position as price moves:

  • Collect fees
  • Remove liquidity
  • Add new position with new range

Conclusion​

Concentrated liquidity is powerful but requires:

  • Understanding of mechanics
  • Active monitoring
  • Willingness to adjust positions

Start with conservative ranges and graduate to aggressive strategies as you learn.

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