Introduction

The core innovation of Dexlyn lies in its support for concentrated liquidity, which allows users to provide liquidity within custom price ranges. By contrast, most standard protocols used by common decentralized exchanges distribute liquidity uniformly across the entire price curve (0, ∞).

This uniform distribution results in a large portion of liquidity remaining unused, effectively wasting capital. For instance, in stablecoin pairs where the trading price typically remains constant, liquidity outside the narrow trading range is rarely utilized. In fact, in most standard-based stablecoin pools, less than 1% of the total liquidity is actively used, while the rest remains idle.

Naturally, liquidity providers (LPs) expect their capital to be used as efficiently as possible to maximize fee earnings. Concentrated liquidity pools solve this inefficiency. LPs can allocate their liquidity to specific, active price ranges of a trading pair. For example, an LP may choose to provide all of their liquidity within the (0.995, 1.005) price band of a stablecoin pool. Since most trading occurs around the mid-price, this approach significantly improves capital efficiency and maximizes fee generation.

With concentrated liquidity, the range of an LP’s capital shifts from infinite to finite. Liquidity deployed within a finite range is called a position (or liquidity position). Furthermore, an LP can create multiple positions within the same pool. By setting different ranges, they can simulate various price curves and tailor strategies to meet their individual objectives.