SNAP Basic Training 03: Concentrated Liquidity In Plain English

You learned how routing, slippage and fees shape each swap. Now look at the shape of the pool itself.

SNAP uses concentrated liquidity. The phrase sounds heavy. In practice it comes down to one question:

Where along the price line do you want your capital to actually work?

In older AMMs, liquidity sits evenly across every possible price. In concentrated designs, you choose a band. When market price lives inside that band, your position is active. When price walks out, your position waits.

This is about learning to place those bands in a way that makes sense.

What concentrated liquidity really is

Picture a long price line for a pair, from very cheap on the left to very expensive on the right.

A classic pool spreads liquidity smoothly across that line. Your capital is present at every price, including ones nobody ever trades.

Concentrated liquidity lets you draw a box on that line and say:

• “Only use my liquidity between these two prices.”
• “Ignore me outside that band.”

Inside the box, traders see deeper liquidity and lower price impact for the same TVL. Outside the box, the pool behaves as if you are not there.

At code level this is handled with ticks and curves. You do not need that for Basic Training. You only need to remember:

• You choose a lower and upper price
• Your liquidity is active only inside that band
• Many LPs stack boxes over each other along the line

The protocol handles the maths.

From smooth pools to boxes

Why did anyone bother with this design in the first place?

Because spreading liquidity from price zero to price infinity wastes capital. Most trading sits near the current price. Liquidity far away earns little, yet still has to be funded.

Concentrated liquidity fixes that by letting LPs:

• Aim capital where trades actually happen
• Get more depth near market price with less TVL
• Earn more fees per unit of capital while in range Paradigm+1

The trade off is simple. You now have control, which means you can be wrong.

Your box and the moving price

A concentrated position is a box on that price line. Price moves left and right through it.

While price sits inside your band:

• You earn a share of swap fees, based on your share of active liquidity
• Your asset mix shifts as trades happen

High level behaviour:

• As price moves up through your range, you slowly sell token A for token B
• As price moves down, you slowly sell token B for token A
• Near the lower edge you hold mostly one side
• Near the upper edge you hold mostly the other

Once price fully exits your band:

• You stop earning fees
• Your position sits in whatever mix the exit left you with
• You can adjust the range or wait for price to re enter cyfrin.io+1

You do not need to calculate exact curves. Just accept that range choice shapes two things at once: your fee flow and your final holdings.

Different ways to set a band

There is no single “correct” band. There are patterns.

1. Full range style

You set a very wide band that covers nearly all realistic prices.

• Easiest to understand
• You stay in range most of the time
• Fees per unit of capital are weaker

Useful for learning the interface or for pairs you barely follow.

2. Active band around current price

You pick a tighter range either side of the live price, where you expect most trading.

• Stronger fee potential while in range
• Needs occasional adjustment if price drifts away
• Suits people who are willing to check in

3. Directional view

You bias your band above or below the current price. You are comfortable ending up mostly in one token if price keeps moving.

This behaves more like placing a limit order inside an AMM:

• Range above price and you are mainly selling token A for token B
• Range below price and you are mainly buying token A with token B

For Basic Training you do not need clever shapes. A simple active band is usually enough.

Matching range style to the pair

Not every pair wants the same treatment.

Tightly linked assets, for example:

• staked ETH / ETH
• stable pools with small drift

These often trade in a narrow channel. You can consider tighter bands, because:

• Price usually stays close to fair value
• Leaving the range completely is less common
• You can target a compact area and still have high uptime

On the other hand, volatile or “story heavy” pairs:

• Can shoot far in one direction on news
• Spend long periods trending rather than bouncing
• Punish narrow ranges with frequent trips out of band

For these, a wider range often makes more sense, even if the headline APR for tight bands looks tempting.

One simple mental rule:

Correlated and calm pairs can support tighter bands. Wild pairs respect wider bands.

Where concentrated liquidity helps you

Concentrated liquidity mainly helps in three ways:

1. Capital efficiency
   You can get similar depth near market price with less TVL locked, compared to smooth pools.
2. Control over exposure
   Your band choice shapes how much price risk you take and what you end up holding if price leaves the range.
3. Custom strategies
   With multiple positions, you can build shapes that behave like several separate pools in one place. That is advanced territory and out of scope for this lesson, but the same building blocks apply.

The protocol provides the tool. Outcome depends on where you choose to place the tool on the price line.

What concentrated liquidity does not fix

This design is powerful, but it does not grant special protection.

It does not:

• Remove impermanent loss
• Guarantee you outperform a simple hold
• Repair a bad pair choice
• Promise that fees will always cover price moves

You can still:

• Sit out of range and earn nothing for long stretches
• End up holding mainly the weaker asset after a trend
• Underperform someone who simply bought and held the stronger side

The point is focus, not magic.

Simple range checks before you click

Before you add liquidity on a concentrated pool, run through a short list.

Check the pool:

• Has this pair seen steady volume over the last days, or was there only a single spike?
• Is there already a visible band of active liquidity near the current price?
• Does the fee tier suit the pair, given what you learned in Basic Training 02?

Check your band idea:

Write it in plain language.

• “I want to be active while price trades between X and Y.”
• “If price goes above Y and I end up mostly in token B, I am fine with that.”
• “If price goes below X and I end up mostly in token A, I am also fine with that.”

If you cannot say those lines clearly, your range is not ready.

Your task

Time for a small field exercise.

1. Open SNAP and pick one concentrated pool that you already understand at a basic level, for example a major TAC pair or a familiar LST pair.
2. Look at the current price and the visible liquidity chart.
3. Mark three things in a note:
   • Where most of the liquidity is sitting right now
   • A tight range you think would be active for a few days
   • A wider “fallback” range that feels safer
4. Create a tiny position using the wider range, with an amount small enough that you do not care about the outcome.
5. Over the next day, refresh the position a few times:
   • Did the pool earn any fees at all?
   • Did your asset mix shift in a way that matches what you expected?
6. If price touches the edge of your band, watch how your mix changes as it moves closer to leaving.

Write down what happened in plain language. No charts. No formulas. Just what changed and whether it surprised you.

Mission takeaway

Concentrated liquidity turns one smooth pool into many boxes along a price line.

You earn when price lives inside your box, trades actually pass through the pool, and your share of active liquidity at that price is meaningful. You leave the exercise with two new skills:

• You can picture where your band sits on the line.
• You understand what you end up holding if price walks out.

Once that picture in your head matches what you see on SNAP, you are ready to size up.