New to liquidity? Start with Classic. It’s simpler and needs no attention. Want to earn more and don’t mind managing it? Use Concentrated.
First, what is a liquidity provider?
A pool is a shared pot of two tokens. Traders swap against the pot, and each swap pays a small fee. That fee is split among everyone who deposited into the pool, in proportion to how much they put in. As a liquidity provider (LP), you’re essentially earning rent on your tokens. There’s one trade-off to understand first, called impermanent loss; it applies to both Classic and Concentrated. Please read Impermanent Loss, Explained before depositing.The two modes side by side
How to think about it
Classic spreads your tokens across every price, from zero to infinity. It always works, it never needs adjusting, and it earns a steady share of fees, but your money is thinly spread, so you earn less per dollar deposited. Concentrated pools let you focus your tokens in a price range you choose, say, “between 2,200 for ETH”. Because your money is focused where trading actually happens, it does much more work and earns far more fees for the same amount. The catch: if the price moves outside your chosen range, your position stops earning until the price comes back or you adjust your range. That’s why Concentrated rewards a bit of attention.A simple analogy. Classic is like renting out stalls along an entire highway; you’ll
always catch some traffic, but it’s spread thin. Concentrated is like putting all your stalls at the
one busy intersection: far more customers, but only while the traffic stays there.
Which should you choose?
- Choose Classic if you want to deposit and walk away, or you’re providing liquidity for the first time.
- Choose Concentrated if you want to earn more, you understand that you might need to update your price range occasionally, and you’re comfortable with the idea of a position going “out of range”.