Guide

What is concentrated liquidity?

Concentrated liquidity is a model where liquidity providers commit their capital to a chosen price range instead of the full price curve, earning more fees on the same capital while the price stays in range.

Standard AMM vs concentrated liquidity

A standard, v2-style AMM spreads your capital evenly from zero to infinity, so most of it sits idle far from where trading happens. Think of a highway where cars only use a few lanes but you paid to pave all of them. Concentrated liquidity, introduced by Uniswap v3, lets you pave only the lanes in use: you place capital in a range around the current price, so the same money does much more work. Providers cite capital efficiency of up to 200x to 300x versus the old model.

Ticks, in-range and out-of-range

A range is built from ticks, discrete price segments with a lower and upper bound. While the market price stays between your bounds, the position is in range and earning fees. When the price moves past a bound, it goes out of range: it stops earning, and you are left holding 100% of the side that fell in value. That is the core trade-off, and it is why a concentrated position is not set-and-forget.

The impermanent loss trade-off

Because your capital is concentrated, a price move hurts more: concentrated positions carry higher impermanent loss than a full-range position. You earn more fees for staying in range, but you also feel divergence more sharply. See the impermanent loss guide and try your numbers in the calculator.

Where you meet it, and the automation wedge

Concentrated liquidity is available on Uniswap v3 and v4, and on Base through Aerodrome Slipstream, among others. The constant is that someone has to manage the range. Doing it by hand is tedious and costs gas on every move, which is exactly the burden that automated liquidity management removes, self-custodially, on Pool Party.

Frequently asked questions

What is concentrated liquidity?

Concentrated liquidity is a model where liquidity providers commit capital to a chosen price range instead of the whole price curve, earning more fees on the same capital while the price stays in range. It was introduced by Uniswap v3 and is available on Base through Aerodrome Slipstream.

What is a downside of concentrated liquidity?

It increases impermanent loss and needs active management. When the price leaves your range the position stops earning and you are left holding more of the token that fell. That is why concentrated positions need rebalancing, or automation to do it for you.

How does concentrated liquidity work?

You set a lower and upper price (a range made of discrete ticks) and your capital is used only within it. While the price stays in range you earn fees on a much smaller, more efficient slice of capital. Out of range, the position is dormant.

What is the difference between concentrated liquidity and a standard AMM?

A standard (v2-style) AMM spreads your capital evenly across all prices, so most of it sits idle far from the current price. Concentrated liquidity lets you place capital where trading actually happens, which is more efficient but requires you to manage the range.