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Concentrated Liquidity

You may read the detail here. Here is some key points you need to aware of

  1. Concentrated liquidity means providing liquidity at a specific price range. There will be a lower bound and an upper bound to the selected range. For example, you could provide ETH/USDC liquidity ranging from 1,000 USDC to 1,500 USDC.

  2. In terms of fee earning, Concentrated Liquidity is approximately 10-50x more efficient than the constant product formula, the x*y=k model.

  3. Concentrated liquidity is similar to leveraged grid trading. Imagine you are setting a bot to execute "buying ETH at 1000USDC" and "selling ETH at 1200USDC" with 10x leverage. This will have a similar effect of providing liquidity at a narrow price range.

  4. The narrower the price range, the more concentrated the liquidity, also has the similar result of adding higher leverage to your position. When you use high leverage, you may enjoy high capital efficiency and also bear higher risk!

Dynamic Fee

Key Points:

  1. Uniswap V3 offers four fee options(i.e. 0.01%, 0.05%, 0.3% and 1% ) for each pair in order to maintain a balance of interests. The options are initially designed to optimally match different price ranges, such as stable pairs range, normal price range, and aggressive price range. The fee options can be used to redistribute profits and regulate the balance.

  2. HoustonSwap supports both two models, Fixed Fee and Dynamic Fee. All new pool will set Dynamic Fee as default models.

  3. Please refer the formula here.

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