How Does a Concentrated Liquidity Pool Differ in Its Impact on Impermanent Loss?

Concentrated liquidity pools allow LPs to allocate capital within a specific, narrow price range instead of the full 0 to infinity range. This increases capital efficiency and allows LPs to earn significantly higher fees within their chosen range.

However, if the token price moves outside of the LP's specified range, all of their liquidity converts to the less valuable asset, and they stop earning fees. This "out-of-range" event can significantly amplify the effect of impermanent loss compared to a full-range pool.