Concentrated Liquidity: How It Works and Why It’s Changing DeFi

When you provide liquidity in DeFi, concentrated liquidity, a smart way to allocate funds in automated market makers by focusing on specific price ranges. Also known as targeted liquidity, it lets you earn more fees with less capital than older liquidity models. Before concentrated liquidity, you had to spread your tokens across every possible price — like leaving money under every rock in a field. Now, you pick the range where you think the price will move, and only lock your funds there. This cuts waste, boosts returns, and puts control back in your hands.

This shift is tied directly to AMMs, automated market makers that power most DeFi trading without order books, especially Uniswap V3, the first major DEX to fully adopt concentrated liquidity in 2021. Before Uniswap V3, liquidity providers lost money when prices moved outside their range. Now, you can set boundaries — say, between $1,800 and $2,200 for ETH — and earn fees only when trading happens in that zone. If the price moves too far, your position becomes inactive, but you’re not stuck with idle capital. It’s like renting out a house only when tenants are likely to show up, not leaving it empty all year.

Concentrated liquidity isn’t just for pros. Even beginners can use it to make their crypto work harder — if they understand the risks. It requires more attention than traditional pools. You need to monitor price action, adjust ranges, and avoid getting caught in sharp moves. But the payoff is real: users on Uniswap V3 have earned up to 5x more fees than with older versions. And it’s not just Uniswap anymore. Platforms like SushiSwap, Curve, and others now offer similar tools. What you’ll find below are real cases: how people used concentrated liquidity to profit, how some lost money by ignoring volatility, and which exchanges and tokens made it work best. This isn’t theory. These are the stories behind the numbers.