How Does a Concentrated Liquidity Pool Differ from a Standard AMM Pool?

Standard AMM pools spread liquidity evenly across the entire price range from zero to infinity. Concentrated liquidity pools (CLPs) allow LPs to allocate their capital to specific, narrow price ranges.

This makes the capital more efficient within that range, leading to higher fee generation for the LP when the asset price is within their chosen range. However, it also increases the risk of the price moving outside the range, causing 100% impermanent loss and zero fee earning.