Single-Position NFTs vs Pooled LP Token Vaults

Specific advantage: Direct ownership of concentrated liquidity positions on AMMs like Uniswap V3. This matters for advanced strategies (e.g., market-making around specific price ranges) and capital efficiency (up to 4000x vs. V2). Users can actively manage fees, impermanent loss, and rebalancing.

Specific advantage: Each position is a unique, non-fungible ERC-721 token. This matters for DeFi legos—NFTs can be used as collateral in lending protocols (e.g., NFTfi), fractionalized, or traded on secondary markets. It unlocks liquidity for locked capital.

Specific advantage: Automated, hands-off liquidity provisioning across a broad price range (often full-range). This matters for set-and-forget investors and institutional capital seeking yield without active management. Protocols like Balancer, Yearn, and Gamma Strategies manage rebalancing.

Specific advantage: Aggregates user funds into a single vault, optimizing for fee capture and gas efficiency. This matters for smaller deposits that would be uneconomical as single NFTs and for accessing complex, multi-protocol yield strategies (e.g., farming rewards on top of base fees).

Concentrated liquidity allows LPs to target specific price ranges (e.g., ±10% around current price). This can generate up to 4000x more fees per unit of capital than a full-range V2 position when the price stays in range. This matters for sophisticated LPs and market makers with strong price conviction.

Each position is a unique ERC-721 NFT, enabling granular management, transfer, and use as collateral. Protocols like NFTfi and BendDAO allow borrowing against them. This matters for users who want to actively manage risk, sell positions OTC, or leverage their LP capital in DeFi.

Positions become inactive (earning zero fees) if the price exits the set range, leading to impermanent loss on idle capital. Requires frequent monitoring and rebalancing, incurring gas fees. This matters for passive investors or those unwilling to manage positions daily on chains like Ethereum mainnet.

Liquidity is spread across many discrete price ticks, complicating aggregation. Integrating these NFTs into yield aggregators or money markets is more complex than using a fungible ERC-20 LP token. This matters for protocols like Aave or Yearn that need standardized, fungible collateral.

Vaults like Gamma Strategies or Sommelier Finance automate the entire process: harvesting fees, compounding, and adjusting price ranges. LPs earn yield passively. This matters for institutions and individuals who want Uniswap V3 exposure without the operational overhead.

Deposits receive a standard ERC-20 vault token (e.g., G-UNI) representing a share of a diversified portfolio of V3 positions. This reduces single-position risk and makes the asset easily integrable across DeFi for lending or as a liquidity layer. This matters for protocols seeking simple, liquid collateral.

LPs cede control to the vault's strategy, introducing smart contract risk and performance fee drag (typically 10-20% of yield). Returns depend on the vault's rebalancing algorithm. This matters for users who prioritize self-custody and want to keep 100% of their generated fees.

To provide a passive experience, vaults often use wider, more conservative price ranges or multiple staggered positions. This reduces the peak fee multiplier compared to a optimally managed single NFT. This matters for LPs with high price conviction who want to maximize fee yield on a specific range.