Calculate Impermanent Loss and Capital Efficiency for Uniswap v3 positions. See how narrowing your price range increases your fee-earning power but also your risk.
In v2, your money is spread from $0 to infinity. In v3, you focus it. A range that is 10% wide can earn 20x to 50x more fees than a standard pool, but price moves hurt more.
Relative to HODL 50/50
Strategic Tip: Concentrated liquidity is a trade-off. A narrower range earns more fees but requires frequent rebalancing and carries higher IL risk. Most professionals target a range that covers 10-20% of expected price volatility.
In traditional AMMs (like Uniswap v2), liquidity is distributed uniformly along the entire price curve. This is inefficient because most trading happens within a narrow price range. Uniswap v3 allows LPs to concentrate their capital within a custom price range, providing more liquidity where it's needed and earning significantly higher fees.
By narrowing your range, you are essentially "leveraging" your capital. A range that is 10% wide provides as much liquidity as 20x to 50x more capital in a standard pool. This means 50x more fee revenue, but your Impermanent Loss also compounds 50x faster.
Key Concept:
Providing concentrated liquidity is essentially selling Volatility. You want the price to bounce back and forth inside your range without ever leaving it.
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