Finding My Sweet Spot
Uniswap v3 Concentrated Liquidity
Today we explore the game-changing innovation of concentrated liquidity introduced in Uniswap v3. This is where LP strategies get interesting.
The v2 Problem
In Uniswap v2, your liquidity was spread across the entire price range — from $0 to infinity. This meant:
- Most of your capital sat idle
- Only a tiny portion earned fees at current prices
- Capital efficiency was extremely low
v3's Solution: Price Ranges
Uniswap v3 lets you choose a specific price range for your liquidity. For example:
- ETH/USDC from $1,500 to $2,500
- Your capital is concentrated in that range
- You earn fees only when prices are in your range
The Capital Efficiency Multiplier
Here's where it gets powerful. If ETH is trading at $2,000 and you set a range of $1,900-$2,100 (±5%):
| Range Width | Capital Efficiency |
|---|---|
| Full range | 1x |
| ±50% | 3x |
| ±10% | 10x |
| ±5% | 20x |
| ±1% | 100x |
A narrower range = more fees from less capital.
The Trade-off
But there's a catch:
Tighter ranges = Higher fees + Higher IL + Risk of going out of range
When price moves outside your range:
- You stop earning fees
- Your position becomes 100% one token
- You face maximum IL for that range
Range Strategy Examples
Conservative (Wide Range)
ETH/USDC: $1,000 - $4,000
- Lower fee income
- Less rebalancing needed
- Survives big swings
Moderate (Medium Range)
ETH/USDC: $1,600 - $2,600
- Good fee income
- Monthly rebalancing
- Balanced risk/reward
Aggressive (Tight Range)
ETH/USDC: $1,900 - $2,100
- Maximum fee income
- Daily monitoring needed
- High IL risk
Choosing Your Range
Consider these factors:
- Volatility: More volatile = wider range needed
- Time horizon: Longer = wider range
- Management ability: Can you rebalance often?
- Gas costs: Narrow ranges need frequent adjustments
Pro Tip: The 1-Month Backtest
Before deploying real capital:
- Pick your range based on current price
- Look at the past 30 days of price action
- Calculate how often you'd be in/out of range
- Estimate fees vs IL
Today's Assignment
Open Uniswap v3 Positions and:
- Select ETH/USDC 0.3% fee tier
- Move the range slider to see how capital efficiency changes
- Note how the chart shows liquidity distribution
Don't deposit yet — we're just learning the interface.
Congratulations on completing the free preview! Tomorrow begins the Pro content where we dive into actual position management and advanced strategies.