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== Uniswap v3 == | == 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. | 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 | 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. | 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 == |
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