Concentrated Liquidity
Choose a price range, provide liquidity, and see how concentrated positions amplify capital efficiency.
From Full Range to Concentrated
In the basic AMM, liquidity is spread across all prices from zero to infinity. Most of it sits at prices far from the current market, doing nothing. Concentrated liquidity lets LPs choose a price range and put all their capital to work within it.
Virtual Reserves
Within its range, a concentrated position behaves like a full-range position with much larger reserves. The real tokens deposited are a fraction of the virtual amount. For a position with liquidity L between prices pLow and pHigh, the real reserves at current price P are:
x_real = L · (1/√P - 1/√pHigh) and y_real = L · (√P - √pLow)
Capital Efficiency
A ±5% range gives roughly 10x the liquidity depth per dollar vs full range. Tighter means more efficient but more risk of going out of range. The depth chart shows this: tall narrow bars mean concentrated liquidity.
Going Out of Range
When price exits a position's range, it stops earning fees. Below pLow the position is 100% token A. Above pHigh it's 100% token B. This is more extreme than v2 impermanent loss.
Multiple Positions
A swap routes through all active positions at the current price. As price hits a position boundary, that position deactivates and liquidity drops. Fees are distributed proportionally to each position's share of active liquidity.
The Trade-Off
Capital-efficient but requires active management. Full-range LPs never go out of range. Concentrated LPs earn more when right, nothing when wrong. Most Uniswap v3 liquidity is actively managed by professional market makers.