Concepts & Features

Concentrated Liquidity

In traditional AMMs (x·y = k), liquidity is distributed uniformly along the entire price curve. While this guarantees availability for swaps at any price, much of the liquidity often remains unused, particularly for assets that trade within narrow ranges.

Concentrated liquidity changes this by allowing LPs to allocate liquidity only within specific price ranges where trading activity is expected. This means:

• Liquidity is active and utilized only when the market price is within the selected range.

• LPs can strategically deploy capital to maximize efficiency and potential fee earnings.

• Outside the range, liquidity is inactive and effectively held in a single asset.

By introducing price ranges, concentrated liquidity transforms a uniform curve into a series of targeted positions, giving LPs control over where their capital is exposed while maintaining seamless trading for users.

Price Ticks

In CLMM, the price curve is divided into discrete ticks, which form the boundaries of each liquidity position.

• Ticks partition the full price curve into discrete intervals. The minimum tick spacing = 1 basis point (0.0001).

• Positions are defined by a lower tick and an upper tick, representing their active price range.

• Price moves consecutively between ticks during swaps, allowing predictable price evolution within a position.

Liquidity Position

In CLMM, because different users may provide liquidity in different price ranges, the concept of liquidity position (or position) is introduced. A position contains a user’s concentrated liquidity between a lower and upper price tick.

Positions are independent — liquidity is not fungible across positions; two positions with the same $TVL may contribute differently depending on their range and the current price.

Token composition depends on the current price relative to the position’s bounds:

• If the price is below the position range, the position holds only token Y.

• If the price is above the position range, the position holds only token X.

• If the price is within the position range, the position holds a mix of token X and Y according to its liquidity allocation.

Active Liquidity

• A position is active only when the current price is within its lower and upper ticks.

• When inactive, the position earns no fees. Active positions contain both tokens; positions fully outside the price range become single-sided.

Position NFTs

Every position is represented as a unique NFT, serving as proof of ownership and containing metadata:

• Pool address, position ID, lower/upper ticks, and liquidity amounts

• Positions must be owned via NFT to collect swap fees and participate in liquidity mining

• Allows external protocols or contracts to interact with positions for additional utility

Swaps

Trades execute against the pool liquidity. In CLMM, swap fees are charged in the input token and are distributed proportionally to active positions in range according to their active liquidity.