Concentrated Liquidity: How It Works and Why It Matters in DeFi
When you hear concentrated liquidity, a DeFi innovation that lets liquidity providers focus their capital within specific price ranges instead of across the entire curve. Also known as custom range liquidity, it’s what powers the most efficient decentralized exchanges today. Before concentrated liquidity, AMMs like Uniswap V2 forced you to spread your funds from $0 to infinity—most of it sitting idle. Now, you pick a price range, like $1,800 to $2,200 for ETH, and put all your money right where trades actually happen. That means higher fees, better returns, and less wasted capital.
This shift changed everything for AMMs, automated market makers that use math instead of order books to set prices. Traditional AMMs made liquidity providers earn less because their capital was diluted. Concentrated liquidity fixes that by turning LPs into active market makers. You’re not just holding tokens—you’re strategically placing bets on where prices will move. It’s like running a mini-exchange inside a bigger one. And it’s not just for pros. Even small traders can use tools to set optimal ranges, though it requires more attention than before.
But it’s not magic. liquidity pools, the smart contract wallets that hold paired assets for trading with concentrated liquidity can get wiped out fast if the price moves outside your range. You don’t just lose fees—you get fully converted into one asset. That’s why people use range limiters, alerts, and rebalancing bots. And it’s why platforms like Uniswap V3, the first major DEX to implement concentrated liquidity at scale became so popular. They gave users control, but also responsibility.
You’ll find posts here about projects that use this tech, scams that pretend to offer "easy" concentrated liquidity, and tools that help you manage your ranges without losing sleep. Some of these guides show you how to avoid getting liquidated. Others break down why certain pools earn more than others. And a few warn you about fake protocols that copy the name but don’t deliver the real mechanics. This isn’t about passive income anymore. It’s about active participation. If you’re using DeFi and not thinking about where your liquidity sits, you’re leaving money on the table—or worse, losing it.
DragonSwap v1 Crypto Exchange Review: Speed, Fees, and Limitations on Sei Network
DragonSwap v1 is the fastest and cheapest DEX on Sei Network, offering sub-second trades and fees under $0.002. Ideal for active traders, but limited to Sei ecosystem tokens.
- December 8 2025
- Terri DeLange
- 19 Comments