CLMM

Concentrated Liquidity AMM (CLMM)

Advanced Capital Efficiency Framework

CLMM enables liquidity providers to concentrate capital within specific price ranges through virtual reserve manipulation: (x + virtual_x) × (y + virtual_y) = k

This approach dramatically improves capital efficiency by focusing liquidity where trading activity is most likely to occur, resulting in reduced slippage and enhanced returns for active liquidity managers.

Technical Implementation

Efficiency Mechanisms:

• Range Specification: Liquidity providers define precise price bounds for capital deployment

• Virtual Reserves: Mathematical framework amplifying effective liquidity within specified ranges

• Dynamic Adjustment: Real-time range management and rebalancing capabilities

Operational Requirements:

• Active Management: Continuous monitoring and adjustment as prices move relative to specified ranges

• Range Optimization: Strategic positioning based on market analysis and trading patterns

• Complexity Management: Advanced understanding required for effective range selection and management

Performance Comparison

Using the previous pool example with concentrated liquidity between 95-105 Runes per BTC:

• Liquidity depth calculation: L = √(1,000 × 100,000) = 10,000

• Range amplification factor: (150-50)/(105-95) = 10x concentration benefit

• Effective liquidity: 100,000 (10x amplification)

• Same 50 BTC trade execution results in approximately 1.1% slippage vs. 4.76% in CPMM