Concentrated Liquidity (Uniswap V3) vs Full Range (Uniswap V2) AMM Model

Targeted liquidity placement: LPs concentrate funds within custom price ranges (e.g., $1,800-$2,200 for ETH). This can provide up to 4000x higher capital efficiency for stable pairs (e.g., USDC/USDT) compared to V2. This matters for professional LPs and protocols maximizing fee yield on large TVL.

Multiple fee levels: Supports 0.01%, 0.05%, 0.30%, and 1.00% pools. This allows optimization for different asset volatilities (e.g., 0.01% for stablecoins, 0.30% for ETH/DAI). This matters for traders seeking best execution and LPs aligning fees with risk.

Passive, full-range liquidity: LPs provide liquidity across the entire price curve (0 to ∞). This eliminates impermanent loss management and liquidity rebalancing. This matters for retail LPs, long-term holders, and new protocols seeking a simple, battle-tested base layer.

Uniform liquidity across price space: Ensures predictable pricing for integrators like Compound, Aave, and Yearn. The constant product formula (x*y=k) is the standard reference for countless forks (SushiSwap, PancakeSwap V2). This matters for developers building on a stable, predictable primitive.

• Professional Market Making: Maximizing yield on stablecoin pairs or tight-corridor assets.
• Perpetuals & Derivatives Protocols: Needing deep, efficient liquidity at specific strikes (e.g., GammaSwap, Panoptic).
• Capital-Intensive DeFi: Where efficiency directly impacts protocol TVL and user APY.

• Protocol Foundation & Forking: Starting a new DEX or needing a proven, composable base.
• Retail & Set-and-Forget LPs: Users unwilling to actively manage price ranges.
• Long-Tail & Volatile Assets: Where concentrated liquidity risks frequent exits and high management overhead.

Up to 4000x more capital efficient than V2 by allowing liquidity to be concentrated within custom price ranges. This matters for professional market makers (PMMs) and protocols like Gamma Strategies or Arrakis Finance that can actively manage positions to maximize fee yield on deployed capital.

Multiple fee tiers (0.01%, 0.05%, 0.30%, 1.00%) allow LPs to be compensated for varying levels of risk and pair volatility. This matters for stablecoin pairs (e.g., USDC/USDT using 0.01%) versus exotic altcoin pairs where higher fees (1.00%) are necessary to offset impermanent loss risk.

Concentrated positions require monitoring and rebalancing as prices move out of range, exposing LPs to inactive liquidity and lost fees. This matters for passive retail LPs who lack the tools or time for management, making it a poor fit compared to V2's 'set-and-forget' model. Requires integration with keeper networks like Gelato.

Non-fungible liquidity positions (NFTs) and more complex routing logic create integration hurdles. This matters for DeFi protocols and aggregators (e.g., 1inch, Yearn) that must handle batch transactions and NFT accounting, increasing development overhead compared to V2's simple, fungible LP tokens.

Full-range liquidity provides constant product formula (x*y=k) simplicity, ensuring liquidity is always available across all prices. This matters for new protocols launching tokens or long-tail asset pairs where active management is impractical, guaranteeing a baseline of liquidity and easier oracle integration (e.g., Chainlink).

Fungible ERC-20 LP tokens are seamlessly integrated across the DeFi stack. This matters for yield aggregators (Convex Finance, Yearn), lending markets (Aave, Compound) accepting LP tokens as collateral, and layer-2 scaling solutions seeking minimal contract complexity for deployments on Arbitrum or Optimism.

Specific advantage: LPs concentrate liquidity within custom price ranges, providing up to 4000x higher capital efficiency for stable pairs like USDC/USDT. This matters for professional market makers and protocols seeking maximum fee yield per deployed dollar, reducing impermanent loss exposure within the chosen band.

Specific advantage: Offers multiple fee tiers (0.01%, 0.05%, 0.30%, 1.00%) to match asset volatility. This matters for tailoring returns to risk, allowing stablecoin pools (0.01%) and exotic altcoin pairs (1.00%) to optimize for their specific market dynamics, a feature absent in V2's uniform 0.30% fee.

Specific advantage: Enables sophisticated strategies like range orders and leveraged liquidity through external managers (e.g., Arrakis Finance, Gamma). This matters for institutional LPs and DAO treasuries that use active management to maximize yield, turning LP positions into a more active income instrument.

Specific advantage: Passive, full-range liquidity requires no active management or price range forecasting. This matters for retail LPs and long-term holders who prefer a "set and forget" model, providing continuous liquidity across all prices (0 to ∞) without manual intervention or recomposition risk.

Specific advantage: The uniform, fungible LP token (ERC-20) is natively supported across hundreds of DeFi protocols like Aave, Compound, and Yearn for collateralization and yield stacking. This matters for protocol architects building on a stable, widely integrated primitive, as V3's non-fungible position (ERC-721) has fragmented support.

Specific advantage: Single mint/burn functions are ~30-50% cheaper in gas than V3's multi-step position management. This matters for high-frequency integrators and users on L2s where cost predictability is critical, eliminating the gas overhead and complexity of tick math and range adjustments.