# How Do Concentrated Liquidity Pools Modify the Constant Product Formula's Impact? ⎊ Path

**Published:** 2025-12-05
**Author:** Greeks.live
**Categories:** Path

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## How Do Concentrated Liquidity Pools Modify the Constant Product Formula’s Impact?

Concentrated liquidity pools, like Uniswap V3, allow LPs to allocate capital within specific price ranges instead of the entire (0, infinity) range. This modification means the constant product formula is applied only within the chosen range.

This increases capital efficiency and fees for the LP in that range, but also increases the risk of impermanent loss if the price moves outside their chosen range.

- [What Is a Concentrated Liquidity Model and How Does It Differ from a Standard AMM?](https://learn.greeks.live/path/what-is-a-concentrated-liquidity-model-and-how-does-it-differ-from-a-standard-amm/)

- [How Does a “Concentrated Liquidity” Model Affect Liquidation Price Impact?](https://learn.greeks.live/path/how-does-a-concentrated-liquidity-model-affect-liquidation-price-impact/)

- [How Does a Concentrated Liquidity Pool Differ in Its Impact on Impermanent Loss?](https://learn.greeks.live/path/how-does-a-concentrated-liquidity-pool-differ-in-its-impact-on-impermanent-loss/)

- [How Would This Formula Change for a Liquidity Pool Governed by a Constant Mean or Constant Sum Formula?](https://learn.greeks.live/path/how-would-this-formula-change-for-a-liquidity-pool-governed-by-a-constant-mean-or-constant-sum-formula/)

- [What Are the Advantages and Disadvantages of Using a Constant Sum Formula versus a Constant Product Formula in an AMM?](https://learn.greeks.live/path/what-are-the-advantages-and-disadvantages-of-using-a-constant-sum-formula-versus-a-constant-product-formula-in-an-amm/)

- [Explain the Concept of “Concentrated Liquidity” and Its Impact on Impermanent Loss](https://learn.greeks.live/path/explain-the-concept-of-concentrated-liquidity-and-its-impact-on-impermanent-loss/)

- [How Does Providing Liquidity in a Narrow Price Range Affect the Risk of Impermanent Loss?](https://learn.greeks.live/path/how-does-providing-liquidity-in-a-narrow-price-range-affect-the-risk-of-impermanent-loss/)

- [How Does a Concentrated Liquidity Pool Modify the Constant Product Formula’s Impact?](https://learn.greeks.live/path/how-does-a-concentrated-liquidity-pool-modify-the-constant-product-formulas-impact/)

## Glossar

### [Constant Product Formula](https://learn.greeks.live/area/constant-product-formula/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Formula ⎊ The Constant Product Formula, a cornerstone of Automated Market Makers (AMMs) like Uniswap, dictates the relationship between the reserves of two tokens within a liquidity pool.

### [Concentrated Liquidity Position](https://learn.greeks.live/area/concentrated-liquidity-position/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Mechanism ⎊ A concentrated liquidity position within automated market makers represents a strategic allocation of capital to a specific price range, differing from traditional liquidity provision by enabling capital efficiency.

### [Capital Efficiency](https://learn.greeks.live/area/capital-efficiency/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Leverage ⎊ Capital efficiency, within cryptocurrency and derivatives, fundamentally represents the maximization of risk-adjusted returns relative to capital at risk, a metric increasingly vital given regulatory constraints and market volatility.

### [Concentrated Liquidity Pool](https://learn.greeks.live/area/concentrated-liquidity-pool/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Protocol ⎊ A concentrated liquidity pool, within the context of cryptocurrency derivatives and options trading, represents a structural evolution from traditional Automated Market Makers (AMMs).

### [Concentrated Liquidity](https://learn.greeks.live/area/concentrated-liquidity/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Allocation ⎊ ⎊ Concentrated liquidity represents a departure from traditional automated market maker models by enabling liquidity providers to specify precise price ranges where their capital will be deployed, fundamentally altering capital efficiency.

### [Concentrated Liquidity Pools](https://learn.greeks.live/area/concentrated-liquidity-pools/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Allocation ⎊ Concentrated Liquidity Pools represent a capital deployment strategy within automated market makers, shifting from uniform distribution to customized ranges, thereby enhancing capital efficiency.

## Discover More

### [How Does Concentrated Liquidity Benefit Large Institutional Traders?](https://learn.greeks.live/path/how-does-concentrated-liquidity-benefit-large-institutional-traders/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does Concentrated Liquidity Benefit Large Institutional Traders?](https://learn.greeks.live/wp-content/uploads/2025/10/Geometric-Crystaline-Structure-Symbolizing-Complex-Volatility-Surface-Calibration-in-Decentralized-Finance.webp)

Concentrated liquidity allows institutions to execute large orders quickly with minimal slippage and market impact, reducing overall transaction costs.

### [Explain the Difference between a Constant Product Market Maker and a StableSwap Market Maker](https://learn.greeks.live/path/explain-the-difference-between-a-constant-product-market-maker-and-a-stableswap-market-maker/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![Explain the Difference between a Constant Product Market Maker and a StableSwap Market Maker](https://learn.greeks.live/wp-content/uploads/2025/10/Macro-Analysis-of-Digital-Asset-Settlement-Layers-Reflecting-Option-Contract-Structure-Ambiguity.webp)

CPMM is for volatile pairs (x y=k); StableSwap is for pegged assets, minimizing slippage and IL near 1:1 ratio.

### [What Is a "Concentrated Liquidity" AMM Model and How Does It Improve Capital Efficiency?](https://learn.greeks.live/path/what-is-a-concentrated-liquidity-amm-model-and-how-does-it-improve-capital-efficiency/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is a "Concentrated Liquidity" AMM Model and How Does It Improve Capital Efficiency?](https://learn.greeks.live/wp-content/uploads/2025/10/Teal-Blue-Granular-Texture-Encapsulating-a-Spherical-Quantum-Refraction-Mechanism-in-a-Precision-Bearing-Track.webp)

LPs allocate capital to specific price ranges, concentrating liquidity to reduce slippage and increase capital efficiency.

### [How Do Concentrated Liquidity Positions in AMMs like Uniswap V3 Alter the Risk of Impermanent Loss?](https://learn.greeks.live/path/how-do-concentrated-liquidity-positions-in-amms-like-uniswap-v3-alter-the-risk-of-impermanent-loss/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Do Concentrated Liquidity Positions in AMMs like Uniswap V3 Alter the Risk of Impermanent Loss?](https://learn.greeks.live/wp-content/uploads/2025/10/Retro-Futuristic-Rocket-Fin-Analogous-to-Decentralized-Finance-Governance-Structure-Vector-Configuration.webp)

Concentrated liquidity boosts fee potential but greatly amplifies impermanent loss risk if the price exits the set range.

### [What Is the Impact of "Flash Loans" on the Stability of Liquidity Pools in DeFi?](https://learn.greeks.live/path/what-is-the-impact-of-flash-loans-on-the-stability-of-liquidity-pools-in-defi/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is the Impact of "Flash Loans" on the Stability of Liquidity Pools in DeFi?](https://learn.greeks.live/wp-content/uploads/2025/10/Electrostatic-Potential-Measurement-Needle-Apex-and-Metallic-Ball-Centered-on-Darkened-Volatility-Surface-Instrument.webp)

Flash loans enable large, instant trades that can cause extreme, temporary price impact and high slippage in DeFi liquidity pools.

### [How Does the Constant Product Formula in AMMs Relate to Slippage?](https://learn.greeks.live/path/how-does-the-constant-product-formula-in-amms-relate-to-slippage/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does the Constant Product Formula in AMMs Relate to Slippage?](https://learn.greeks.live/wp-content/uploads/2025/10/Stochastic-Volatility-Equilibrium-Modeling-of-Decentralized-Finance-Option-Hedging-Instruments.webp)

Large trades cause a significant shift along the x y=k curve, resulting in a large price change and high slippage.

### [How Does the Constant Product Formula (X Y = K) Directly Cause Impermanent Loss?](https://learn.greeks.live/path/how-does-the-constant-product-formula-x-y-k-directly-cause-impermanent-loss/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does the Constant Product Formula (X Y = K) Directly Cause Impermanent Loss?](https://learn.greeks.live/wp-content/uploads/2025/10/Hydrodynamic-Efficiency-Modeling-of-Decentralized-Finance-Derivative-Settlement-Mechanisms.webp)

Arbitrage trades rebalance the pool to satisfy x y = k, leading to a token ratio that is less favorable than simply holding the initial assets.

### [Explain the Difference between a Constant Product and a Constant Sum AMM Curve](https://learn.greeks.live/path/explain-the-difference-between-a-constant-product-and-a-constant-sum-amm-curve/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![Explain the Difference between a Constant Product and a Constant Sum AMM Curve](https://learn.greeks.live/wp-content/uploads/2025/10/Symmetrical-Intersecting-Black-Scalar-Beams-Encapsulating-Central-Volatile-Digital-Asset-Orbs.webp)

Constant product is for volatile pairs; constant sum is for pegged pairs to minimize slippage and IL.

### [How Do Concentrated Liquidity Pools Fundamentally Change the Slippage Calculation for a Specific Price Range?](https://learn.greeks.live/path/how-do-concentrated-liquidity-pools-fundamentally-change-the-slippage-calculation-for-a-specific-price-range/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Do Concentrated Liquidity Pools Fundamentally Change the Slippage Calculation for a Specific Price Range?](https://learn.greeks.live/wp-content/uploads/2025/10/Saturnine-Structure-Representing-Stochastic-Volatility-Surface-Convergence-in-Decentralized-Finance-Primitives.webp)

Concentrated pools minimize slippage within the range due to focused TVL, but slippage is infinite outside the range.

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**Original URL:** https://learn.greeks.live/learn/how-do-concentrated-liquidity-pools-modify-the-constant-product-formulas-impact/
