Concentrated Liquidity: How AMMs Like Uniswap V3 Boost Capital Efficiency

When working with Concentrated Liquidity, a technique that lets liquidity providers place their funds into a specific price range on an automated market maker. Also called price‑range liquidity, it increases capital efficiency and concentrates fee earnings. Uniswap V3 brought this idea to mainstream DeFi, while other AMM platforms such as Balancer V2 have built on the concept. In the ecosystem of decentralized exchanges (DEXs), concentrated liquidity changes how liquidity providers earn fees and manage risk.

Why It Matters for Traders and Builders

Concentrated Liquidity enables providers to allocate capital where price movements are most likely, which means the same amount of money can generate higher fee returns compared to uniform liquidity. The main attributes are price‑range selection, fee‑tier choice, and active liquidity monitoring. For example, a provider who narrows the range to $1,500‑$1,600 on a BTC/USDC pool can earn double the fees of a classic 24/7 pool, but also faces higher impermanent loss if price jumps outside that band. Uniswap V3’s fee‑tier system (0.05%, 0.30%, 1.00%) lets providers match risk tolerance with expected volatility. Balancer V2 adds flexible pool weights, letting users blend concentrated and uniform liquidity in a single pool. These variations illustrate the semantic triple: Concentrated Liquidity → requires price‑range selection, Uniswap V3 → implements fee tiers, and AMM designs → benefit from capital efficiency. The result is a more dynamic market where traders get tighter spreads while providers earn better returns for the same capital.

Below you’ll find a curated set of guides, reviews and deep dives that explore concentrated liquidity from every angle—tokenomics of projects that use it, step‑by‑step walkthroughs of setting up a range order, risk‑management tips, and performance comparisons across leading DEXs. Whether you’re a new liquidity provider curious about the basics or a seasoned DeFi builder looking for advanced strategies, the articles that follow give you practical insights you can act on right away.