Pool Concentration

Pool concentration refers to the practice of providing liquidity within a specific, narrow price range rather than across the entire price spectrum. This approach, popularized by advanced automated market makers, allows liquidity providers to earn higher fee yields on their capital by focusing it where most trading activity occurs.

While this increases capital efficiency, it also exposes the provider to greater risk if the asset price moves outside the chosen range, at which point the position stops earning fees. This strategy requires active management and a deep understanding of price trends.

It represents a shift from passive liquidity provision to a more sophisticated, active market-making model. By concentrating liquidity, providers optimize their contribution to market depth while maximizing their potential returns.