Perks for Liquidity Providers

Note for DEX Teams:

This section outlines the key benefits liquidity providers gain when participating in your Algebra-powered DEX. It's designed to help users understand the value of active liquidity management and the incentives tied to your specific pool configurations. You can customize this page to reflect your unique fee structure, reward programs, and farming integrations.

Higher Capital Efficiency

Concentrated liquidity allows LPs to allocate their capital within specific price ranges instead of spreading it across the entire curve. This means every dollar deposited is working harder within active trading zones, generating more trading fees per unit of capital. By focusing liquidity where trades actually occur, LPs can significantly increase their capital efficiency — boosting it up to 20x compared to V2 AMMs.

Increased Fee Earnings

By concentrating liquidity within active price ranges, LPs can earn significantly more fees per dollar deployed compared to full-range providers.

For example, Alice and Bob both provide liquidity to a TON/USDT pool. Alice deposits $1M across the full range, while Bob allocates just ~$183,500 within a narrower band (2.5–7.5).

As long as the price stays in that range, both earn the same fees — meaning Bob earns 5.44x more per dollar. However, if the price moves outside Bob’s range, his capital stops generating fees and is fully exposed to impermanent loss in one asset.

This highlights the trade-off: higher efficiency and returns for concentrated LPs, in exchange for greater exposure to price movement.

Targeted Exposure to Price Action

With traditional AMMs, LPs are exposed to price movements across the entire spectrum, including ranges where little or no trading happens. Concentrated liquidity lets LPs define the exact price ranges in which they want to be active, enabling them to align their exposure with expected market behavior or trading patterns. This precision offers greater control over risk and rewards, allowing LPs to deploy strategies tailored to market volatility, price trends, or time-based events.