Encyclopedia DeFi · Entry 52
Concentrated liquidity: providing inventory inside a price range
In this article
At a glance
Key facts
| Fact | Detail | Source |
|---|---|---|
| Range | Each v3 position has its own lower and upper price boundary. | [1] |
| Inactive | An out-of-range position no longer earns swap fees. | [1] |
| Composition | Beyond either boundary, liquidity inventory is one token; uncollected fees are separate. | [1] |
Allocate depth where trading happens
A full-range pool makes inventory available across its whole price curve. A concentrated position allocates it to an interval. Several overlapping positions form the liquidity that a trader meets at a particular price.
This can create more depth per deposited unit inside the interval. It does not guarantee greater total return: the provider has chosen a narrower set of prices where the inventory participates.
Follow a hypothetical price interval
Consider a v3 ETH/quote-token position whose interval is 1,800 to 2,200 quote units per ETH. At 2,000 it contains both assets and is active. As ETH rises through the interval, traders remove ETH from the position and add the quote token. Above 2,200 the position is entirely quote token, excluding uncollected fees.
If ETH falls below 1,800, the opposite endpoint leaves the position entirely ETH. Returning inside the interval makes the same position active again; it does not create a new deposit. This example describes the direction of inventory changes, not current prices or a recommended range.
A narrower range has narrower coverage
A provider may withdraw and create a new range, but that involves transactions and changes the inventory strategy. An out-of-range position is not automatically sold back into its original mix. A narrow interval can be crossed quickly.
The full-range impermanent-loss formula cannot simply be applied to an arbitrary concentrated position. Valuation requires that position’s boundaries, current price, deposited amounts and earned fees. Treat a v2 percentage calculator as a different model.
Direct answers
Questions people ask
Does leaving the range mean the tokens disappear?
No. In the v3 model the liquidity inventory is one token outside the range, apart from uncollected fees. Its inventory still has value, but it is inactive for swaps and no longer earns swap fees until the price returns.
Inspect the evidence
The answer and key facts have stable claim links. These records retain the scope and qualification when reused.
Concentrated liquidity lets a provider commit inventory to a selected price interval. In Uniswap v3, that position participates in trades and earns swap fees while the pool price is inside its range. Outside the range, its liquidity inventory is one token, apart from uncollected fees, and it stops earning swap fees until it becomes active again.
Scope: DeFi. Verification: verified · 2026-10-02T15:08:18.373Z.
Link to this claimRange: Each v3 position has its own lower and upper price boundary.
Scope: DeFi. Verification: verified · 2026-10-02T15:08:18.373Z.
Link to this claimInactive: An out-of-range position no longer earns swap fees.
Scope: DeFi. Verification: verified · 2026-10-02T15:08:18.373Z.
Link to this claimComposition: Beyond either boundary, liquidity inventory is one token; uncollected fees are separate.
Scope: DeFi. Verification: verified · 2026-10-02T15:08:18.373Z.
Link to this claimRevision history
- — First publication after primary-source research and independent automated verification.
- — Before first publication, independent review checked and revised: quickAnswer, keyFacts, faq. Read the v3 announcement’s Concentrated Liquidity, Active Liquidity and Non-Fungible Liquidity sections. Verified direction of ETH/quote inventory across the illustrative 1,800–2,200 range. Corrected QA, composition fact and FAQ to preserve the uncollected-fees exception: one-token liquidity inventory does not imply every outstanding fee claim is one token. The full-range loss formula is explicitly excluded for arbitrary ranges.
Source register
Sources and references
Retrieval dates and locators are recorded individually.- Introducing Uniswap v3Uniswap Labs
Range-based liquidity, inactive positions and position-specific accounting.
Locator: Concentrated Liquidity; Active Liquidity; Non-Fungible Liquidity · Version / scope: 2021-03-23 announcement · Retrieved: 2026-10-02Open source - Uniswap v2 pair sourceUniswap
Reserve accounting, LP shares, fee-adjusted invariant and optional protocol fee.
Locator: mint; burn; swap; _mintFee · Version / scope: v2-core v1.0.1 · Retrieved: 2026-10-02Open source
Research and drafting use AI assistance. A separate automated review checks claims against primary sources; no external expert or named human review is implied. Publication, substantive editing, source retrieval and verification are recorded separately. This version was independently checked by an automated reviewer on 2 October 2026.
Editorial method and correctionsDegrees of Satoshi editorial project. “Concentrated liquidity: providing inventory inside a price range.” Published 2026-10-02; updated 2026-10-02. https://degreesofsatoshi.com/encyclopedia/concentrated-liquidity/