What Is the Concept of ‘Liquidity Decay’ in the Context of Out-of-Range Concentrated Liquidity Positions?

'Liquidity decay' refers to the opportunity cost and potential value erosion of a concentrated liquidity position that has gone out of its specified price range. When the market price moves outside the LP's range, the position becomes inactive, consisting of 100% of either the cheaper or more expensive asset.

At this point, it stops earning trading fees, and the LP is fully exposed to the price movements of the single asset they hold, effectively 'decaying' its fee-generating potential until the position is either rebalanced or the price re-enters the range.