What Is Concentrated Liquidity?
Concentrated liquidity enables liquidity providers (LPs) to deploy capital within a specific price range on decentralized exchanges (DEXs), rather than distributing it uniformly across the entire price curve. This approach maximizes capital efficiency by ensuring funds are actively used for swaps, generating higher fees.
Key Benefits:
- Higher APR: Up to 320% more profitable than traditional pools (source).
- Reduced Idle Capital: Funds remain fully utilized within the chosen range.
Challenges:
- Technical Complexity: Requires active management and rebalancing.
- Gas Fees: Frequent adjustments incur transaction costs.
- Impermanent Loss (IL): Potentially higher due to narrow ranges.
Concentrated liquidity thrives in deep, moderately volatile markets (e.g., ETH/USDC). Smaller or highly volatile tokens often use standard pools.
Major CLMM Protocols Compared
1. Uniswap V3 (Ethereum & Multichain)
- Dominance: Leading CLMM on Ethereum, Arbitrum, Polygon, Optimism, and Base.
- Volume: $2.52B weekly trading volume, $1.85B TVL.
- Fee Tiers: 0.01%, 0.05%, 0.3%, 1%.
- Positions: Represented by NFTs showing pair, fee tier, and price range.
- V4 Preview: Introduces "hooks" for dynamic fees and yield-generating strategies (blog).
👉 Explore Uniswap V3 strategies
2. Trader Joe’s Liquidity Book (Avalanche, Arbitrum)
- Innovation: Uses discrete "bins" (fixed-price pools) instead of continuous ranges.
Features:
- Single-sided liquidity deposits.
- Dynamic fees to offset IL.
- Autopools for automated rebalancing.
- Volume: $65M–$90M weekly on Avalanche.
3. PancakeSwap V3 (BNB Chain)
- Forked from Uniswap V3: Launched April 2023 post-BSL expiration.
Differences:
- LPs earn 67% of fees (vs. 100% on Uniswap).
- Yield farms offer additional CAKE rewards (up to 100% APR).
- Volume: $380M–$910M weekly.
4. SushiSwap V3 (15+ Chains)
- Multichain Reach: Live on Ethereum, Arbitrum, Base, and niche chains like Core Blockchain.
- Volume: $1.3M–$4.3M weekly per chain.
- Future Plans: Expansion to all supported networks.
5. Osmosis (Cosmos)
Unique Features:
- "Supercharged pools" with OSMO incentives.
- Intuitive strategies (Passive, Aggressive, etc.).
- Volume: $250K daily in top pools.
Pontem Network’s CLMM on Aptos
Launching Soon: Pontem will debut Aptos’ first concentrated liquidity DEX, inspired by Trader Joe’s Liquidity Book.
Key Features:
- Bin-based architecture (no NFTs).
- Multiple liquidity shapes (Spot, Curve, Bid-Ask).
- Low Aptos gas fees (<$0.02 per transaction).
Survey Insights from Liquidity Providers
Pontem surveyed 36 active LPs to gauge CLMM adoption and pain points:
Top Protocols Used:
- Uniswap V3 (25 users), PancakeSwap V3 (20), Trader Joe (9).
Primary Motivations:
- Higher APR (13) and better volume for large pairs (14).
Challenges:
- Frequent rebalancing (6) and price range exits (8).
Desired Features:
- NFT rewards (13) > yield farming (3).
Adoption Drivers:
- Low gas fees (majority) > token variety (2).
👉 Learn how to optimize CLMM strategies
FAQs
Q: Which CLMM is best for beginners?
A: Trader Joe’s Liquidity Book offers simpler single-sided deposits and autopools.
Q: Does concentrated liquidity increase impermanent loss?
A: Yes, narrow ranges can amplify IL, but dynamic fees (e.g., Trader Joe) mitigate this.
Q: When will Pontem’s CLMM launch?
A: Follow Pontem’s Twitter for updates.
Q: Can I farm yields on PancakeSwap V3?
A: Yes, CAKE rewards are available for V3 LPs.
About Pontem Network
Building Aptos-native products like:
- Pontem Wallet (300K+ installs).
- Liquidswap (top Aptos DEX).
- Move language developer tools.
For more, visit Pontem’s official site.