Concentrated liquidity
Liquidity provision where capital is committed to a chosen price range rather than the whole curve, earning more fees while the price stays inside it and nothing when it leaves.
A position does nothing continuously. It sits in a range collecting fees until the market price leaves, at which point the provider either moves the range and pays for the move, or stops earning.
Why the decision is not about size
The variable is not how much to hold but when to act and how far to jump. That is the shape of a stochastic impulse control problem, and it is the thing a continuous-allocation model gets wrong.
What learned policies do
- Size capital against how far the pool price sits from the market's, not against pool depth alone.
- Weigh the cost of rebalancing before moving, so the range is not chased.
- Widen or hold under higher uncertainty.
- Carry inventory risk explicitly and adjust to the operator's stated risk tolerance.
Reported results compress the lower tail of the profit-and-loss distribution rather than raising the mean. That is a narrower claim than it sounds and a more credible one: provision rarely fails through mediocre days, it fails through one repricing that leaves the position on the wrong side of the pair.