How Do Rebalancing Strategies for Concentrated Liquidity Positions Differ from Those for Traditional Liquidity Pools?

Rebalancing a traditional liquidity position is generally not necessary, as it covers all possible prices. For a concentrated liquidity position, rebalancing is an active process.

If the asset's price moves outside the chosen range, the provider must decide whether to wait for it to return, or to create a new position at the new price. This can involve realizing the impermanent loss from the old position and incurring transaction fees for the new one.

This makes managing concentrated liquidity more akin to active trading than passive income.