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Uniswap V3
Question
Grit
@grit · Nov 15, 2023, 23:21
What is Concentrated Liquidity, the new feature of Uniswap V3?
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Comments (1)
GCY
@gcy · Nov 15, 2023, 23:25
As you know, Uniswap is a place where you can swap one type of cryptocurrency for another.
Imagine a big pool where people can add their own cryptocurrencies.
This pool is used by others to swap their cryptocurrencies.
In Uniswap V2, this pool is spread evenly across all prices.
Uniswap V3 introduces "Concentrated Liquidity."
Here, you can choose specific price ranges where you want your cryptocurrencies to be used.
This means you're focusing your assets where you expect more trading activity.
By concentrating your liquidity, you can earn more transaction fees when trades occur within your chosen price range.
It's more efficient because your assets are focused where they are most needed.
The downside is that if you choose the wrong price range in the pool and not many trades happen there, you might not earn as much.
Imagine a big pool where people can add their own cryptocurrencies.
This pool is used by others to swap their cryptocurrencies.
In Uniswap V2, this pool is spread evenly across all prices.
Uniswap V3 introduces "Concentrated Liquidity."
Here, you can choose specific price ranges where you want your cryptocurrencies to be used.
This means you're focusing your assets where you expect more trading activity.
By concentrating your liquidity, you can earn more transaction fees when trades occur within your chosen price range.
It's more efficient because your assets are focused where they are most needed.
The downside is that if you choose the wrong price range in the pool and not many trades happen there, you might not earn as much.
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