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What is concentrated liquidity?
Concentrated liquidity is a way of supplying tokens to a decentralized exchange pool within a price range you choose, instead of across all possible prices. Your tokens earn trading fees only while the market price stays inside that range.
What it means for you
If the price leaves your range, the position stops earning fees and ends up entirely in one of the two tokens. Narrow ranges earn more while in range but fall out sooner, and the position does not follow the price: moving it means withdrawing and adding again, paying gas each time.
How it works
In a classic constant-product pool, liquidity covers every price from zero to infinity, so most of it is never used. A concentrated position holds only enough of each token to support trading within its range, and inside that range it behaves like a much larger pool, so the same capital gives deeper liquidity. When the price exits the range, one token has been fully swapped out and the position stops earning. Prices move in ticks of one basis point. A very narrow position acts like a limit order, but if it is not withdrawn after being crossed, a price reversal trades it back.
An example
Say ETH trades at $2,000 and you provide liquidity between $1,800 and $2,200. While the price stays in that band, swaps pass through your position and you earn a share of the fees. If ETH rises to $2,300, your position has sold all its ETH for the stablecoin and earns nothing until the price returns to the range.
Source: Uniswap v3 Core design paper (Adams, Zinsmeister, Salem, Keefer, Robinson, 2021) · checked 4 October 2026
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Educational content, not financial advice. Written by hand and checked against the source named above. Something wrong? Tell us and we reply within two business days.