What are Concentrated Liquidity and its benefits?

In most swaps, liquidity is distributed evenly along an x*y=k price curve, with assets reserved for all prices between 0 and infinity. For most pools, a majority of this liquidity is never put to use, the price range in which LPs would expect to see the most volume and consequently earn the most fees.

LPs of most pools only earn fees on a small portion of their capital, which can fail to appropriately compensate for the price risk (”impermanent loss”) they take by holding large inventories in both tokens. Additionally, traders are often subject to high degrees of slippage as liquidity is spread thin across all price ranges.

In BananaSwap, LPs can concentrate their capital within custom price ranges, providing greater amounts of liquidity at desired prices. In doing so, LPs construct individualized price curves that reflect their own preferences.

about BananaSwap
BananaSwap is an AMM decentralized trading platform running on Solana with the design of Concentrated liquidity.

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