How Does Active Management of a Position Affect the Profitability of Concentrated Liquidity Provision?

Active management is crucial for profitability in concentrated liquidity. It involves frequently monitoring the price and rebalancing the position by moving the capital into a new, relevant price range before or after the price moves out of the current range.

While this active approach allows the LP to capture higher fees, the transaction costs (gas fees) for rebalancing can significantly erode profits. Therefore, successful active management requires a strategy that maximizes fee capture while minimizing rebalancing costs.