VaporDEX
  • Introduction
    • Welcome to VaporDEX
  • VaporDex
    • Swap & Aggregator
      • How to Swap
      • Who do we Aggregate through?
    • Liquidity Pools
      • Overview of LP Pools
        • What are LP Pools & IL
      • Creating a new pool
      • Launching a token
      • Add to existing Liquidity Pools
      • Concentrated Liquidity Pools
        • Capital Efficiency
        • Active Liquidity
        • Range Limit Orders
        • Mitigating Risk
        • Concentrated Liquidity Vs Standard Pools
      • Telos on VaporDex
    • Bridge
      • How to Bridge?
    • Fiat On and Off Ramping
      • Mt Pelerin
      • Onramper
    • Vape Token
      • Introduction to Vape
        • What is VAPE?
        • Why a new token?
        • The Expanded Role of VPND
        • Role of VAPE in our ecosystem
        • Governance for VaporDEX and VAPE
        • VaporDEX Fee Harvesting
        • Primary Markets for Vape
          • Which market to earn VAPE is right for you?
        • Supply
          • Allocation of initial supply
        • Emission Types
          • Genesis Pool (Direct Emissions)
          • Liquid Staking (Direct Emissions)
          • Enhanced Staking (Indirect Emissions)
          • Stratosphere Rewards
        • VAPE manufacturing & node-powered infrastructure
        • FAQ's
          • Will I need a node in order to manufacture VAPE?
          • Why do we need manufacturing, it seems unnecessary?
          • What if I don’t want to participate in manufacturing, can I sell my materials or transfer them to so
          • Why should I bother manufacturing VAPE?
          • How many nodes can I stake on buildings?
          • Will staking my node on a building burn my TVL?
          • If I stake my node on a building, will it still earn VPND from the VaporNodes reward pool?
          • Will a 10K Node be more powerful than a 10M node in the manufacturing process?
          • Do I lose VAPE materials that I deposit into a building, but fail to be refined, processed, or token
      • Genesis
        • What is the Genesis Pool?
        • How does the Genesis Pool work?
        • How does the Genesis Pool work?
        • How do you determine how much VAPE you will be able to claim from the Genesis Pool?
        • How does the Genesis Pool allow the community to determine the true value of VAPE?
        • Initial Evaluation
        • Market Valuation
        • Role of Various Community-Driven Valuations
        • What to expect from VaporFi Labs during the Genesis event?
    • Liquid Mining
      • VPND Liquid Mining
        • Participation & Eligibility Overview
        • Seasons Concept Overview
        • Overview of Components
          • Deposit VPND
          • Purchase a Mining Pass
            • How Do we Split Mining Pass Fees?
          • Withdraw VPND
            • Early Unlock VPND Cooldowns
          • Claim VAPE
          • Boost Score
        • Mining Mechanics
          • Mining Seasons
          • Seasonal Scoring
          • Boost Impact
        • Token Allocation & Reward Distribution
      • VAPE Liquid Mining
        • Reward Distribution Model
    • Token Factory
      • Anti-Bot and Anti-Whale Features
      • Technical Simplicity
      • Token Launch Considerations
      • Fees
    • Ads
    • Supported Chains
      • Avalanche
      • Telos
      • Apechain
  • Stratosphere
    • What is Stratosphere?
      • How to see your soul bound NFT from Stratosphere
      • How to enroll in Stratosphere
      • Stratosphere FAQ
  • Developers
    • Github repositories
    • Contracts
    • Audits
  • Support
    • Where to get help?
  • Social Media
    • Twitter
    • Discord
    • Medium
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  1. VaporDex
  2. Liquidity Pools
  3. Concentrated Liquidity Pools

Capital Efficiency

Capital Efficiency is arguably the greatest feature of Concentrated Liquidity pools. In simple terms liquidity providers can provide a lot less capital for potentially the same reward they would have gotten with Standard Liquidity pools. This is accomplished by allowing providers to specify the lower and upper bounds (the range) of asset price ranges for which their capital will be made available when providing liquidity.

Traditional liquidity pools such as VaporDex's Standard Liquidity pools work on an unbounded range. Meaning that no matter what the price of the assets are in the pool the liquidity will be made available for the purposes of any given trade. The consequence of this infinitely unbounded range is that the capital is very inefficient because it has to be distributed evenly across the entire the lower and upper bounds (0 to infinity). With Concentrated Liquidity pools the liquidity is only made available for a specified range so there less "wasted" capital for prices the assets may never reach.

This maybe easier to understand using an example:

Let's say that 95% of all $VAPE trades are made when the price of vape is between $.50 and $.85.

Suppose Ren supplies $10K in a V1 style $VAPE/$USDC liquidity pool.

Also suppose Defi supplies $1200 in a V2 style $VAPE/$USDC liquidity pool and sets the lower and upper bounds to $.50 and $.85

As long as $VAPE is trading between $.50-$.85 then Ren and Defi will get the same amount of fees but Defi only had to supply a fraction of the capital that Ren did. Now if the price of $VAPE goes above or below that range then Ren would get all of the trading fees but that is only 5% of trading and he had to provide 88% more capital to get that. Very inefficient!

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Last updated 1 year ago