How Do Liquidity Providers Determine the Optimal Price Range for a Concentrated Liquidity Position?

Determining the optimal price range for a concentrated liquidity position is a complex process that involves balancing risk and reward. Providers often use historical price data to identify a likely trading range for the asset.

They may also use sophisticated modeling tools to forecast future price movements. The goal is to set a range that is narrow enough to maximize fee generation, but wide enough to avoid the position becoming inactive due to price volatility.

This often involves a trade-off between active management and passive income.