Concentrated liquidity (V3) versus constant-product (V2)

How it works

Constant-product liquidity (Uniswap v2) distributes capital across every price from zero to infinity, so only a fraction is active near the current price. A $1M v2 pool may have only $50K-$100K of effective depth within 10% of current price, because the rest sits at prices unlikely to trade.

Concentrated liquidity (Uniswap v3) lets providers set a tick range with lower and upper bounds. Capital inside the range behaves as a much larger pool for trades within it. The v3 whitepaper shows a position concentrated in a 0.1% range is about 4000x more capital-efficient than full-range v2, though practical 10-20% ranges typically yield 5-20x gains.

Design consequence

Concentrated liquidity is almost always the right choice for launch pools, but only if the range is set deliberately. Estimate a realistic post-TGE trading range, often 50-200% around the opening price, and concentrate there.

If price moves outside the chosen range, all concentrated liquidity goes inactive and the token trades against no depth, which is worse than a v2 pool of equivalent size.

Example

$300K in a v2 pool provides consistent but thin depth across all prices. The same $300K concentrated between 0.5x and 2x the launch price provides roughly 5-10x more effective depth within that band, making it far more resistant to the sell pressure that arrives in the first hours.