Concentrated Liquidity (CLMM) Explained: Ranges, Capital Efficiency and Amplified Impermanent Loss
How concentrated liquidity works, with a worked example: a 9.5x range earns 9.5x the fees and takes 9.5x the impermanent loss. Plus ticks, fee tiers and DLMMs.
Short answer: A concentrated liquidity market maker (CLMM) is a DEX design where liquidity providers choose a price range for their capital. Inside that range, a deposit acts like a much larger full-range position: about 9.5x larger for a −20%/+25% range and about 200x for ±1%. It earns fees in proportion. The catch is symmetric. Impermanent loss is magnified by roughly the same factor, and once price leaves your range you hold 100% of one token and earn nothing.
This guide explains how CLMMs work, runs one example position through a full set of price moves, and covers what LPs should decide before depositing. Every figure below comes from the standard Uniswap v3 liquidity formulas, which Cetus, Bluefin, Turbos and Momentum on Sui also use.
A narrow range isn't a higher-yield version of the same position. It's a leveraged bet that price stays put, paid for in fees.
The problem concentrated liquidity solves
A classic constant-product AMM (x · y = k) spreads every LP's capital across all prices from zero to infinity. In a SUI/USDC pool, some of your capital is technically reserved for SUI at $0.001 and some for SUI at $10,000. Almost none of it ever trades. The capital doing real work near the current price is a small fraction of what you deposited.
Uniswap v3 fixed this in 2021 by letting each LP pick a lower and upper price. Your capital only provides liquidity between those two prices, so it's far deeper where trading actually happens. The Uniswap team described the gain as up to 4,000x capital efficiency for a position in a single 0.1% price band. Nearly every serious AMM since, on every chain, has adopted some version of the design.
How much more capital-efficient?
For a range from p/k to p·k around the current price p, a concentrated position matches the depth of a full-range position 1 / (1 − 1/√k) times its size:
| Range around current price | Equivalent full-range capital |
|---|---|
| −50% / +100% | 3.4x |
| −20% / +25% | 9.5x |
| −10% / +11% | 19.5x |
| −5% / +5.3% | 39.5x |
| −1% / +1% | 199.5x |
| −0.1% / +0.1% | ~2,000x |
So $1,000 in a −20%/+25% range provides the same depth, and earns the same share of fees while in range, as about $9,500 spread across all prices. Halve the band width in a stablecoin pool and you reach the 4,000x figure from Uniswap's launch. The ranges are symmetric in ratio terms (a fall to 0.8x and a rise to 1.25x), which is why the percentages look lopsided.
Ticks, fee tiers and why pools split
Price ranges aren't continuous. CLMMs divide prices into ticks, each 0.01% apart in the Uniswap v3 design. Each pool has a tick spacing that controls which ticks can be used as range boundaries. Pools usually come in fee tiers, such as 0.01% for stablecoin pairs, 0.05% or 0.25% for major pairs, and 1% for volatile long-tail tokens. Wider tick spacing goes with higher fees.
In practice this means the same pair can exist as several pools, with liquidity spread between them. Before depositing, check which fee tier actually has the volume. A pool with a better fee tier and no trades earns nothing.
One position, followed through every price move
Deposit $10,000 into a SUI/USDC pool with SUI at $1.00. Use a range of $0.80 to $1.25, about 9.5x concentration. You start with 5,000 SUI and 5,000 USDC. Here's what the position is worth at different SUI prices, compared with just holding those 5,000 SUI and 5,000 USDC, and with the same $10,000 in a full-range pool. Fees are excluded.
| SUI price | Position holds | Position value | Holding value | IL, concentrated | IL, full range |
|---|---|---|---|---|---|
| $0.60 | 10,590 SUI, 0 USDC | $6,354 | $8,000 | −20.6% | −3.2% |
| $0.80 (lower edge) | 10,590 SUI, 0 USDC | $8,472 | $9,000 | −5.9% | −0.6% |
| $0.90 | 7,562 SUI, 2,570 USDC | $9,375 | $9,500 | −1.3% | −0.1% |
| $1.00 (start) | 5,000 SUI, 5,000 USDC | $10,000 | $10,000 | 0.0% | 0.0% |
| $1.10 | 2,796 SUI, 7,312 USDC | $10,387 | $10,500 | −1.1% | −0.1% |
| $1.25 (upper edge) | 0 SUI, 10,590 USDC | $10,590 | $11,250 | −5.9% | −0.6% |
| $1.50 | 0 SUI, 10,590 USDC | $10,590 | $12,500 | −15.3% | −2.0% |
Four things stand out:
- At the range edges, impermanent loss is about 9.5x the full-range figure. That's the same multiple as the capital efficiency. Concentration magnifies fees and losses together.
- Below the range you own only SUI. The pool has sold all your USDC for SUI on the way down. You caught the whole fall with 10,590 SUI.
- Above the range you own only USDC. The pool sold all your SUI on the way up, and your value stops at $10,590 however high SUI goes. At $1.50 you trail holding by 15.3%.
- Out of range, you earn no fees. The position just sits there as a single asset until price comes back, if it does.
A concentrated LP is effectively selling volatility. You collect fees while price stays in a band, and you lose when it leaves. That's why the full-range impermanent loss table in our impermanent loss guide understates what CLMM LPs face.
Do concentrated liquidity LPs actually make money?
Many don't. The best-known study, from Topaze Blue and Bancor in 2021, looked at 17 Uniswap v3 pools between May and September 2021. It found that 49.5% of LPs had negative returns compared with simply holding. Across those pools, impermanent loss of about $260M outweighed about $199M of fees earned.
The same research found the profitable LPs were mostly active ones: sophisticated managers who rebalanced ranges often. Passive retail positions were the ones that trailed holding. That data is from Ethereum in 2021, but the mechanism is the same on Sui today.
Decide these before you deposit
- How correlated is the pair? Stablecoin pairs (USDC–USDT) and asset/liquid-staking-token pairs barely diverge, so a tight range is relatively safe. Volatile pairs (SUI–USDC, and even more so memecoin–SUI) need wide ranges or constant attention.
- How will you rebalance? Moving a range means withdrawing, swapping to the new ratio and re-depositing. That turns impermanent loss into a real loss and costs swap fees. Rebalancing too often can cost more than it earns.
- Is the fee income real? Compare the pool's trading volume to its liquidity. On thin chains a high fee APR often signals a shallow pool, where price moves fast. See the fee-to-TVL figures in our Sui DEX comparison.
- What are incentives paid in? Many CLMM pools add token rewards on top of fees. Their value depends on that token's price, not on trading activity.
- What's the smart contract risk? CLMM maths is harder than constant-product maths, and bugs in it are severe. The $223M Cetus exploit in May 2025 came from an overflow check in the library that converts liquidity into token amounts.
CLMM vs DLMM
A newer design, the dynamic liquidity market maker (DLMM), first used by Trader Joe's Liquidity Book and Meteora, replaces the continuous curve with discrete price bins. Each bin trades at one fixed price, so swaps inside a bin have zero price impact. LPs can shape liquidity bin by bin, for example as a curve, a flat spot or a one-sided ladder, and some DLMMs raise fees when volatility spikes.
The underlying trade-off is the same. Liquidity only earns while price is in the bins that hold it, and a one-way move converts the position into the asset that fell. On Sui, Cetus DLMM, Ferra and Magma use bin-based designs. Together they're still much smaller than the CLMMs.
Concentrated liquidity without managing ranges yourself
Automated vaults take on the operational side: adding liquidity, harvesting rewards and reinvesting them. JewelSwap runs vaults like this on Sui on top of Cetus and Turbos CLMM pools. They compound every 30 minutes at 1× leverage, with a 15% performance fee on harvested rewards. The pools include a stablecoin pair (USDT–USDC on Turbos) and volatile pairs such as SUI–USDC and CETUS–SUI.
Automation changes who does the work, not the maths above. A vault on a volatile pair still carries impermanent loss, and a stablecoin pair is still the lowest-divergence choice. Our stablecoin yield farming guide covers that route.
Frequently asked questions
What does CLMM stand for?
Concentrated Liquidity Market Maker: an automated market maker where liquidity providers set the price range their capital trades in, instead of spreading it across all prices. Uniswap v3 introduced it in 2021. On Sui, Cetus, Bluefin Spot, Turbos and Momentum all run CLMMs.
Is concentrated liquidity better than full-range liquidity?
It earns more fees per dollar while price is in range, but it magnifies impermanent loss by about the same factor and earns nothing out of range. It's better for correlated pairs and for LPs who actively manage ranges. For passive LPs on volatile pairs, it's often worse.
What happens when my CLMM position goes out of range?
It stops earning fees and holds 100% of one token. If price fell below your range, that's the base asset. If price rose above it, that's the quote asset. It starts earning again only if price comes back into range, unless you withdraw and redeposit around the new price.
How do I choose a price range?
Start from how volatile the pair is and how often you're willing to rebalance. Stablecoin pairs can use very tight ranges. Volatile pairs need ranges wide enough to hold normal price swings for as long as you plan to leave the position alone. Tighter means more fees but more frequent exits from range.
Do most Uniswap v3 LPs lose money?
A 2021 study by Topaze Blue and Bancor of 17 Uniswap v3 pools found 49.5% of LPs had negative returns compared with holding, with about $260M of impermanent loss against about $199M of fees. Active, frequently rebalanced positions did better than passive ones.
What is the difference between a CLMM and a DLMM?
A CLMM uses a continuous price curve divided into ticks. A DLMM uses discrete price bins, each trading at one fixed price, which gives zero price impact within a bin and lets LPs shape their liquidity bin by bin. Both only earn while price is inside the liquidity you provided.
Keep reading
- Impermanent loss explained: the formula and how to calculate it
- Sui DEXs compared: Cetus, DeepBook, Bluefin, Turbos and Momentum
- What is Cetus Protocol?
- Single-sided liquidity explained
- How to start yield farming, step by step
This article is educational and isn't financial advice. Worked examples use the standard Uniswap v3 liquidity formulas, exclude fees and assume a single deposit with no rebalancing. Study figures are from Topaze Blue and Bancor (2021). JewelSwap operates vaults on Cetus and Turbos.
