Protocol-Owned Liquidity: Concentrated Strategies vs Full-Range Strategies

Higher Capital Efficiency: Liquidity is focused within a specific price range, generating up to 4000x more fees per unit of capital than full-range pools (e.g., Uniswap v3). This matters for maximizing yield on a limited treasury.

Active Management Overhead: Requires frequent rebalancing or sophisticated automation (via Gelato, Chainlink Automation) to avoid impermanent loss outside the range. This matters for protocols lacking dedicated treasury ops.

Passive & Predictable: Liquidity is provided across the entire price curve (0 to ∞), eliminating the need for active management. This matters for protocols like Lido or MakerDAO seeking set-and-forget treasury strategies.

Lower Fee Yield: Capital is spread thin, resulting in significantly lower returns per dollar deposited. To match CL fees, you may need 100-1000x more capital. This matters for protocols aiming to generate meaningful revenue.

Up to 4000x more capital efficient than V2-style pools by focusing liquidity within a defined price range. This allows protocols like Frax Finance to deploy less treasury capital for the same depth, freeing funds for other initiatives. Ideal for stable pairs (e.g., USDC/USDT) or assets with predictable volatility.

Higher fee APY per dollar deployed when the price stays within the active range. Protocols can target high-volume price zones (e.g., around ETH $3k-$4k) to capture more swap fees. Managed services like Gamma Strategies and Arrakis Finance automate rebalancing to maintain optimal positioning.

Higher risk of non-performance (0 fees) if the price moves outside the set range. Requires active management or reliance on third-party vaults. Uniswap V3 positions are NFTs, complicating treasury accounting. This introduces operational overhead and smart contract risk from managers like Gamma.

Set-and-forget liquidity provision across the entire price curve (e.g., Uniswap V2, SushiSwap). No need for active range management, reducing operational risk and smart contract dependencies. Predictable, though lower, fee yield. Best for protocols with a long-term, hands-off treasury strategy.

Liquidity is always available for large, unexpected price swings, providing better guarantees for users. This is critical for new or volatile tokens where price discovery is extreme. Avoids the bad UX of a pool being 'empty' because the price exited a concentrated band.

Most capital sits idle, earning minimal fees, as liquidity is spread across prices that may never be reached. For a protocol treasury, this represents a significant opportunity cost. The majority of a full-range LP's capital defends price ranges where no trading occurs.

Capital Efficiency: LPs concentrate capital within a defined price range, achieving up to 4000x higher capital efficiency than full-range pools for the same depth. This matters for maximizing fee yield from a limited treasury or bootstrapping new pairs with minimal upfront capital. Protocols like Trader Joe's Liquidity Book and Uniswap V3 are built on this model.

Active Management & Impermanent Loss Risk: Requires constant monitoring and rebalancing as prices move outside the set range, leading to zero fee accrual and potential divergence loss. This matters for protocols that lack dedicated treasury management ops or seek a passive, set-and-forget strategy. Tools like Gamma Strategies and Arrakis Finance exist to automate this, adding complexity and cost.

Passive & Predictable Yield: Provides liquidity across the entire price curve (0 to ∞), eliminating the need for active range management. This matters for protocols seeking a simple, hands-off treasury strategy that consistently earns fees from all swap volumes, as seen in Uniswap V2 and Balancer Weighted Pools. The yield profile is more stable and predictable.

Low Capital Efficiency: Capital is spread thinly across all prices, with most of it sitting idle at extremes far from the current market price. This matters for protocols with constrained treasuries, as it results in significantly lower fee returns per dollar deployed compared to CL. For example, providing $1M in a full-range pool may generate the same fees as $25k strategically concentrated in a CL pool.