Concentrated Liquidity
A pool design that lets a depositor commit funds only within a chosen price range, so the same money supports more trading.
Instead of spreading a deposit across every possible price, the provider selects a band and the contract concentrates the position there, which deepens the book near the current price. While the market trades inside the band, the position earns a larger share of fees for the same capital. When the price leaves the band, the position converts entirely into whichever asset is now the cheaper one and stops earning fees until the price returns or the range is moved. This turns liquidity provision into an actively managed position rather than a set-and-forget deposit.
In de praktijk
Uniswap version 3 introduced ranges in 2021, replacing the earlier design in which every deposit covered all prices from zero to infinity.
Het veelvoorkomende misverstand
Concentrated liquidity is not automatically better for the provider; a position outside its range earns nothing and sits wholly in one asset.