Understanding Concentrated Liquidity

Concentrated Liquidity pools are liquidity pools on decentralized exchanges (DEX) in which you have to allocate liquidity in a custom price range. You will have full control over the price range and you can adjust it anytime at will. Concentrated Liquidity pools are more capital efficient than traditional “XYK” liquidity pools and have the potential to generate greater yields.

Key Takeaways

Concentrated Liquidity involves providing liquidity in a defined price range and requires active monitoring. Concentrated Liquidity pools have the potential to provide extremely high returns. Users have to be cautious of incurring too many fees when adjusting price ranges.