Uniswap V3: How Liquidity Provision and Concentrated Liquidity Work in DeFi

When you trade crypto on Uniswap V3, a decentralized exchange built on Ethereum that lets users swap tokens without intermediaries. Also known as an automated market maker (AMM), it doesn't use order books—instead, it relies on smart contracts and liquidity pools to match trades in real time. Unlike earlier versions, Uniswap V3 doesn’t spread your funds across every possible price. It lets you choose exactly where your money works—between specific price ranges. This is called concentrated liquidity, a feature that allows liquidity providers to deploy capital more efficiently by focusing on likely trading ranges. Think of it like opening a shop only during peak hours instead of leaving the lights on 24/7. You earn more from the traffic you actually get.

Before Uniswap V3, liquidity providers had to put their tokens into a single pool covering every possible price—from $10 to $1,000—even if trading mostly happened between $80 and $120. That meant most of their money sat idle, earning little in return. With V3, you can set your own range. If you believe ETH will stay between $3,000 and $3,500, you put all your liquidity there. You earn a bigger share of trading fees because your funds are active where most trades happen. But if the price moves outside your range, your tokens stop earning fees until it comes back. This is where the risk comes in—impermanent loss, the temporary loss of value when the price of assets in a liquidity pool shifts dramatically. It’s not a loss unless you sell, but it can hurt if you’re not watching the market.

Uniswap V3 is used by professional traders, DeFi protocols, and even big funds because it’s more capital-efficient. It’s the engine behind many yield strategies, like lending platforms that use V3 pools to generate income from idle assets. It also connects directly with tools that track fees, manage ranges, and automate rebalancing. If you’re earning from DeFi, you’ve likely interacted with V3 without even knowing it. The posts below show how people use it to earn, hedge, and optimize—whether they’re managing small pools or running multi-million dollar strategies. You’ll find real breakdowns of how to set price ranges, how fees stack up, what tools help you track your position, and how to avoid common mistakes that cost people money. This isn’t theory. It’s what’s happening right now in DeFi.