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# System prepended metadata

title: Uniswap v2 vs v3

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# Uniswap v2 vs v3

The defining idea of Uniswap v3 is that of concentrated liquidity: liquidity bounded within some price range. But this doesn't make much sense right? Let's uncover this from real world perspective...

In a traditional AMM like Uniswap v2, the only input from the user is how much of Asset 1 and Asset 2 (liquidity) has to be deployed into the AMM. Capital is then spread all over the yellow curve (all the possible prices of Asset 1 with respect to Asset 2).

In a Concentrated Liquidity AMM (CLAMM) like Uniswap v3 the user needs to specify an additional input: the price range [P1:P2]. This allows the liquidity to be placed - or concentrated - only between P1 and P2.

## Why does this exist and what are the pro and cons?
Imagine you are swapping mSOL to SOL. mSOL is a liquid staked derivative of Solana from MarinadeFinance, meaning it accrues revenue from the staking of SOL. Its price is close to 1 + staking_rewards. 

A Traditional AMM model for mSOL/SOL would place the liquidity at all the possible prices from 0 to infinity, but is it a good idea? Probably not, it actually is a waste of capital as nobody would ever buy 1 mSOL for 10SOL.

So by providing liquidity in a certain range there are several benefits for traders and Liquidity providers to the CLAMM, such as:

• more control over the position
• more trading fees inside the range
• lower slippage for traders
• more capital efficiency

The real power of CLAMM or v3 is, not only you can use it to earn yield from transaction fees when price is inside the range but you can also use it to place ADVANCED LIMIT ORDERS which gets activated only inside your specific range.

## Let's look at an example: 

I have a lot of SOL and want to take profit above 30$ What I can do is, open a position on the SOL/USDC pool and select a range of 30$ - 40$ . If and when the price is above 40$ my position will be now made entirely of USDC. It is as if we placed a series of high-ask take-profits.

The take here is, the deeper the liquidity in an LP, the more I may benefit concentrating funds in a tighter price range(s).

> TLDR: less money needed to earn the same LP fees and provide the same depth vs more liquidity required across the entire price curve in Uniswap v2.
