Breaking Down Concentrated Liquidity The Evolution of DeFi Market Making

Welcome to a new era of liquidity on STONfi
Today, we begin a two day journey into Concentrated Liquidity Pools (CLPs) a feature that’s changing how decentralized finance works and bringing more power to liquidity providers and traders alike.

But let’s start at the beginning.

Traditional AMMs: The Supermarket Analogy
Imagine you walk into a supermarket where every single item from bananas to batteries is evenly spread across all the shelves. No matter what you're looking for, you’ll find a little of everything everywhere. That’s how traditional AMMs (Automated Market Makers) like Uniswap v2 work.

In this model:

Liquidity is spread evenly across all price ranges.

Traders can always buy and sell at any price, but...

Most of the liquidity isn’t used. It just sits there waiting for trades at unlikely prices.

For example, if ETH is trading at $3,000, there’s still liquidity for $500 and $10,000 but that rarely gets used. As a result, liquidity providers (LPs) earn less because their capital is underutilized.

Concentrated Liquidity: Think Like a Vending Machine
Now imagine a vending machine instead of a supermarket.

Each slot only contains the most in demand products energy drinks, snacks, gum exactly what people buy. That’s concentrated liquidity: LPs choose a specific price range where they want their funds to be active.

With concentrated liquidity:

Providers can choose to deploy capital only between, say, $2,800 and $3,200 for ETH.

Their liquidity is always working, not idle.

This means higher fees and more efficient use of capital.

Why It Matters
Better Capital Efficiency: LPs earn more with less capital.

Tighter Spreads for Traders: Because there’s more liquidity where trades happen most.

Lower Slippage: Traders get more for their swap because the pool is deeper around market prices.

This is a game changer and STONfi is bringing it to the TON blockchain. But how exactly?

Tune in tomorrow when we explore STONfi’s unique approach to implementing concentrated liquidity, and why it’s a strategic leap in the TON DeFi ecosystem.

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