Position Exchange

<p>Concentrated Liquidity Market Maker (CLMM) is a next-generation automated market maker (AMM). CLMM is an excellent source of revenue for liquidity providers (LPs) while increasing the capital efficiency of decentralized exchanges (DEXs).</p><h2 id="header-0">What Is Concentrated Liquidity?</h2><p>Concentrated liquidity refers to the ability of a liquidity provider (LP) to provide liquidity to a selected area along the price curve.</p><h2 id="header-1">Benefits Concentrated Liquidity V3 Brings About</h2><p>For Liquidity Providers:</p><ul><li>It allows LPs to approximate their preferred reserves curve, while still being efficiently aggregated with the rest of the pool.</li><li>It helps to decrease your impermanent losses. The limited range means you earn fees if the market price is within your selected range. In this new system, the key to optimizing returns is that liquidity providers will need to update their price ranges according to the price changes in a volatile market. You can change the price range anytime you think you should.</li></ul><p>For DEX Projects:</p><ul><li>Liquidity concentration helps to increase the pool’s capital efficiency. High liquidity is a premise to develop more financial products in other areas such as Derivatives (Perpetual, Options), …</li></ul><p>For Traders:</p><ul><li>Higher liquidity around the actual price of the currency pair means that traders will execute swaps with lower slippage costs.</li></ul><h2 id="header-2">How does Concentrated Liquidity work on Position Exchange?</h2><p>We want to bring the main function of concentrated liquidity as a mechanism to advance capital efficiency and to make up for the shortage of the original x*y &#61; k formula underlying the standard automated market maker model - considered as the virtual AMM.</p><p>Within the new version of Position Exchange DEX, liquidity can be spread across price ranges, resulting in so-called concentrated liquidity positions. Liquidity providers can open any number of positions in the pool and thus create their own price curve based on their personal market view using what are known as range orders.</p><p>Concentrating liquidity around the current price and updating custom positions as prices change has proven to maximize profits while exposing much less capital to the risk of asset depreciation. It&#39;s a purposeful and effective strategy. The narrower the range you set for your concentrated liquidity position, the more fee revenue you can earn, and vice versa. LPs can choose to provide liquidity across the curve, but they won&#39;t earn as much trading fees as they would by choosing a smaller price point. LPs should also actively manage their positions as the market fluctuates. However, less capitalized providers may have to pay higher costs to provide liquidity due to gas costs associated with price adjustments.</p><h2 id="header-3">Conclusions</h2><p>Keeping your liquidity within a tightly concentrated range requires active management. Liquidity provided at a narrow range has historically earned more fees than liquidity provided at more passive ranges.</p><p>One interesting feature of providing liquidity on a CLMM is that you can open multiple positions for the same token pair. Since you &#34;don’t put all your eggs in one basket&#34;, you can set positions at multiple ranges as a strategy to optimize your returns.</p><p>Concentrated Liquidity is now on the Position Exchange testnet. Navigate to <a href="https://beta.position.exchange/trade/BTCT/BUSDT" rel="noopener noreferrer nofollow">Beta Position Exchange</a> to have a try and receive multiple incentives. For more details, please take a look at this <a href="https://medium.com/position-exchange/position-dex-2-0-incentivized-testnet-b73fde545e68" rel="noopener noreferrer nofollow">article</a>.</p>

What is Concentrated Liquidity? How does Concentrated Liquidity work on Position Exchange?

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