🏅Concentrated Liquidity Advantage
Last updated
Last updated
In a demonstration of concentrated liquidity’s efficiency on Shadow Exchange, consider Alice and Bob each looking to provide liquidity to an FTM/USDC pool with $1,000,000 at an FTM price of $0.45 USDC. Alice spreads her investment across the full price range, by depositing $1m in FTM/USDC. Bob, however, opts for a concentrated approach, allocating $183,500 within the 0.3–0.6$ range and keeping the remainder.
Despite Alice’s larger capital input, both earn equal fees if FTM/USDC stays within Bob’s chosen range. Moreover, if FTM were to go to zero, Bob’s strategy limits his potential loss to $159,000 compared to Alice’s $1,000,000, giving him flexibility to reinvest or hedge with his remaining capital — while still earning the same rewards!
This implementation is the most ideal on a chain like Fantom, slippage is real and exasperated with low liquidity and by concentrating liquidity, Shadow Exchange will perform better with significantly less liquidity than your typical AMM.
