Concentrated LiquidityCLMM
Concentrated liquidity lets a liquidity provider place funds only within a chosen price range. It earns more fees per dollar while the price stays in the range, but earns nothing outside it and increases impermanent loss.
In older AMMs your liquidity was spread across every possible price, so most of it sat unused. Concentrated liquidity lets a provider pick a price range, earning more fees per dollar inside it and nothing outside it.
- Category
- Cryptocurrency and Blockchain
- Reading time
- 3 min
- Also called
- Range liquidity, Uniswap v3 liquidity, CLMM
- Updated
Concentrated liquidity in plain words
Liquidity providers can concentrate liquidity by bounding it within a price range they choose.1
Earlier AMM versions spread liquidity across the entire price range, from zero to infinity.1
Fees are earned only while the price is inside your range.1
How a concentrated position works
Pick a pool and fee tier
Choose the pair and fee level you want to provide liquidity for.
Set the range
Bound liquidity between a lower and upper price.1
Prices snap to ticks
Ticks sit at prices that are integer powers of 1.0001.1
Earn fees in range
Your liquidity only earns fees while the price sits inside the range you chose.1
Manage the position
Active LPs add or remove tokens as price moves to keep liquidity active.1
Account for losses
Impermanent loss is amplified by the leverage of a narrow range.2
Worked examples
Example 1 — Fee boost from a narrow range
+$10/day in feesHypothetically a pool earns $1,000/day in fees on $1M of active liquidity. You add $10,000 in a range where you become 2% of active liquidity instead of 1%.
| Full-range share | 1% × $1,000 = $10/day |
| Concentrated share | 2% × $1,000 = $20/day |
| Extra fees | $20 − $10 = $10/day |
Concentrating capital in a narrow band lowers the capital needed for the same liquidity.1
Example 2 — Out of range
$0 earned for 10 daysHypothetically your range is $1,800–$2,200 and ETH moves to $2,400 for 10 days.
| Fees while out of range | $0 × 10 days = $0 |
| Position now | 100% in the stablecoin side |
Fees accrue only while the position is in range.1
Example 3 — Fees vs impermanent loss
−$300 netHypothetically an LP earns $400 in fees but holds $9,300 vs $10,000 if just held.
| Impermanent loss | $9,300 − $10,000 = −$700 |
| Net result | $400 − $700 = −$300 |
One study found about half of Uniswap v3 LPs had negative returns after impermanent loss.2
Concentrated vs full-range liquidity
| Aspect | Concentrated | Full range |
|---|---|---|
| Price coverage | Chosen range | Zero to infinity |
| Capital efficiency | High inside range | Low |
| Fees out of range | None | Always earning |
| Management | Active | Passive |
Where concentrated liquidity is used
Stable pairs
Tight ranges on a Stablecoin pair with low Volatility.
Market making
Act like an on-chain Market Maker around the price.
Range trading
Express a Range view and earn fees inside it.
Exit strategy
Use a range above price like a Limit Order to sell gradually.
Advantages and disadvantages
Advantages
- Much higher capital efficiency.
- More fees per dollar inside the range.
- Flexible ranges for different views.
- Can mimic limit-order style exits.
Disadvantages
- No fees when out of range.
- Amplified impermanent loss.
- Needs active monitoring and gas costs.
- Many LPs end up with negative returns.
Going deeper
Read as far as you need. Each level builds on the one before it.
Choose where to provide
Beginner
You decide the price range where your capital is used, instead of across all prices.1
Ticks
Intermediate
Prices are discrete ticks at integer powers of 1.0001, so ranges map to tick boundaries.1
Leverage and loss
Advanced
A narrow range acts like leverage, and impermanent loss outside the range must also be accounted for.2 Tax treatment of LP fees differs by country.
Common mistakes
Ranges too narrow
Going out of range quickly and earning nothing.
Ignoring impermanent loss
Counting fees but not the price loss.
Forgetting gas
Rebalancing so often fees are eaten by costs.
Set and forget
Leaving an out-of-range position idle.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- LPs choose a price range.
- Capital is more efficient inside it.
- No fees outside the range.
- Impermanent loss is amplified.
- Active management is needed.
Frequently asked questions
Is concentrated liquidity only on Uniswap?
What happens when price leaves my range?
Is it passive income?
Further learning
- Market Maker
The role LPs play.
- Liquidity
Why depth matters.
- Volatility
Why ranges get breached.
- Range
Picking price bands.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Uniswap Labs. Uniswap v3 Core whitepaper (opens in a new tab) Checked .
- arXiv (Loesch, Hindman, Welch, Richardson). Impermanent Loss in Uniswap v3 (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.