Uniswap V3 vs Uniswap V2

Capital Efficiency: LPs can concentrate funds within custom price ranges. This matters for professional market makers and stablecoin pairs, achieving up to 4000x higher capital efficiency than V2 for the same depth.

Multiple Fee Tiers: Offers 0.01%, 0.05%, 0.30%, and 1.00% pools. This matters for tailoring returns to asset volatility (e.g., 0.05% for stable/stable, 1% for exotic pairs), allowing LPs to better price risk.

Uniform Liquidity: Full-range, automatic liquidity provision. This matters for passive LPs and newer protocols building on top, as the simpler model is easier to integrate and audit (e.g., Yearn vaults, index tokens).

Proven Security Model: No complex ticks or range management. This matters for protocols prioritizing security and stability over peak efficiency, with over $3B in TVL secured across multiple chains like Arbitrum and Polygon.

Specific advantage: LPs can allocate capital within custom price ranges, achieving up to 4000x higher capital efficiency for stable pairs. This matters for professional market makers and high-volume traders seeking maximized fee yield on predictable assets.

Specific advantage: Multiple fee tiers (0.05%, 0.30%, 1.00%) allow LPs to be compensated for varying risk levels (e.g., stablecoins vs. exotic altcoins). This matters for protocols and DAOs building on top, as they can tailor economics to their specific asset pools.

Specific advantage: Uniform liquidity across the entire price curve (0, ∞) makes it a predictable, atomic building block. This matters for new DeFi protocols, aggregators, and fork deployments where simplicity reduces integration risk and audit surface. It's the standard for countless forks like SushiSwap.

Specific advantage: Over $2B in TVL secured for years with no major protocol-level exploits. Its simpler codebase has undergone extensive formal verification. This matters for institutional deployments and conservative treasuries where security and predictability trump marginal efficiency gains.

Concentrated Liquidity: LPs can allocate capital to specific price ranges (e.g., $1,800-$2,200 for ETH/USDC). This yields up to 4000x higher capital efficiency for stablecoin pairs versus V2's full-range model. This matters for professional market makers and protocols seeking deeper liquidity with less TVL.

Multiple Fee Tiers: Supports 0.01%, 0.05%, 0.30%, and 1.00% fees per pool. This allows LPs to be compensated for varying levels of risk (e.g., 0.05% for stable pairs, 1% for exotic altcoins). This matters for optimizing LP returns based on pair volatility and impermanent loss risk.

Passive Management & Fee Distribution: LPs provide liquidity across the entire price curve (0 to ∞), earning fees automatically without active range management. This results in more predictable, hands-off yield, albeit with lower capital efficiency. This matters for retail LPs and protocols like Index Coop that require set-and-forget liquidity strategies.

Requires Constant Rebalancing: Concentrated positions become inactive (stop earning fees) if the price moves outside the set range. LPs must actively monitor and adjust positions, incurring gas costs. This matters for LPs without sophisticated automation tools or bots, leading to potential underperformance.

Liquidity Silos: Capital is spread across discrete price ranges rather than a continuous curve. For large trades that cross multiple ticks, effective slippage can be higher than in V2 if liquidity is not evenly distributed. This matters for institutional traders and arbitrage bots executing large orders.