Glossary
What is Concentrated liquidity?
Concentrated liquidity lets a provider supply liquidity only within a chosen price range, earning more fees on the same capital than a full-range position.
Introduced by Uniswap V3, it replaces V2's even spread with a price band you pick. Inside the band your capital is highly efficient; outside it, your position is fully converted to one asset and earns nothing until price returns.
It rewards active management and a view on where price will trade, which is why it suits market makers more than passive providers.
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Related terms
- Uniswap V3Uniswap V3 introduced concentrated liquidity, letting providers commit capital to a specific price range and represent each position as an NFT.
- AMMAn automated market maker (AMM) is the algorithm a DEX pool uses to price trades from its token reserves, instead of matching individual buy and sell orders.
- Liquidity poolA liquidity pool is a smart contract holding two tokens that traders swap against; its balances set the price via an automated market maker formula.