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=== Slippage === | === Slippage === | ||
When transactions are submitted to Ethereum, their order of execution is established by the amount of "gas" offered as a fee for executing each transaction. The higher the fee offered, the faster the transaction is executed. The transactions with a lower gas fee will remain pending for an indeterminate amount of time. During this time, the price environment in which the transaction will eventually be executed will change, as other swaps will be taking place. <ref>https://docs.uniswap.org/protocol/concepts/V3-overview/swaps#slippage</ref> | When transactions are submitted to Ethereum, their order of execution is established by the amount of "gas" offered as a fee for executing each transaction. The higher the fee offered, the faster the transaction is executed. The transactions with a lower gas fee will remain pending for an indeterminate amount of time. During this time, the price environment in which the transaction will eventually be executed will change, as other swaps will be taking place. <ref>https://docs.uniswap.org/protocol/concepts/V3-overview/swaps#slippage</ref> | ||
== Uniswap v3 == | |||
Uniswap v3 introduced the concept of '''concentrated liquidity''' provision. This allows users to provide liquidity for a certain pool, only in a predetermined price range. | |||
Concentrated liquidity reduces slippage, since, provided most liquidity will be found at prices close to the actual price at which the tokens are currently trading, traders will tap into a deeper pool while LPs will earn more fees as long as the price stays within the range of their LP position. | |||
With concentrated liquidity LP tokens are no longer fungible, they are NFTs (ERC-721) which represent both the amount of tokens supplied and the price range. Concentrated liquidity also worsens [[impermanent loss]]: the narrower the price range, the more a price movement affects the token balances on the LP position. | |||
== Sources == | == Sources == | ||