Explain the Concept of “Concentrated Liquidity” and Its Impact on Impermanent Loss

Concentrated Liquidity (CL) allows LPs to provide capital only within a specific price range, rather than across the entire 0 to infinity range. This increases capital efficiency within that range.

However, if the asset price moves outside the chosen range, the LP's entire position is converted into the less valuable asset, and they stop earning fees, resulting in a potentially higher magnitude of impermanent loss compared to a full-range pool.