How Do Concentrated Liquidity Positions Alter the Risk Profile of Impermanent Loss?

Concentrated liquidity, like in Uniswap v3, allows providers to allocate capital within a specific price range. This amplifies their exposure to impermanent loss if the token's price moves outside that chosen range.

While it can generate higher fees from the same amount of capital, the risk is magnified. If the price exits the range, the position becomes inactive (composed of 100% of the less valuable asset) and earns no fees, making the loss more severe compared to a traditional full-range position.