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Most pools on DYXY use concentrated liquidity, introduced by Uniswap v3 and used by PancakeSwap v3 and Aerodrome Slipstream. Instead of spreading your liquidity over every possible price, from zero to infinity, you choose a price range. Your liquidity is only used, and only earns fees, while the market price is inside that range.

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Why ranges matter

A narrower range concentrates the same capital into fewer price levels, so it earns much more fee per dollar while the price stays inside. The cost is that the price leaves the range more often.

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In range and out of range

  • In range. The pool trades through your liquidity. You earn fees, and your position holds a mix of both tokens.
  • Above the range. The price rose past your upper bound, and your position is now entirely in the quote token, for example USDC in an ETH/USDC pool. You earn no fees.
  • Below the range. The price fell past your lower bound, and your position is now entirely in the base token, for example ETH. You earn no fees.
An out-of-range position is not lost. It still holds tokens, but it is idle until the price returns or you move the range.

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Range presets

When you add liquidity, DYXY offers presets as a starting point:

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Example

ETH trades at $4,000. You provide liquidity to an ETH/USDC pool with a range of $3,600 to $4,400.
  • While ETH is between $3,600 and $4,400, you earn fees on every trade.
  • If ETH rises above $4,400, your position becomes 100% USDC, effectively selling your ETH on the way up.
  • If ETH falls below $3,600, your position becomes 100% ETH, effectively buying ETH on the way down.

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Impermanent loss

Impermanent loss is the difference between the value of your LP position and the value you would have by simply holding the tokens. It grows with the price move, and it grows faster in narrow ranges, because the position converts from one token to the other over a shorter price distance.
A narrow range on a volatile pair can earn a high APR on paper and still lose money overall if the price trends away. Choose a range you are prepared to manage.