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Constant Product vs PCL Pools

As a user, you may want to consider migrating your liquidity from a constant product AMM to a passive concentrated liquidity AMM for several reasons:

  • Capital efficiency: Passive concentrated liquidity AMMs allow you to allocate your funds within specific, narrow price ranges, resulting in higher capital efficiency. This means that your assets are more likely to be utilized for trades within those ranges, potentially generating higher returns compared to constant product AMMs, where liquidity is distributed evenly across the entire price range.
  • Hands-off management: Passive concentrated liquidity AMMs rely on automated strategies to manage price ranges, which means you don't have to actively monitor and adjust your positions. This can save you time and effort while still allowing you to benefit from concentrated liquidity.
  • Reduced impermanent loss: Concentrating liquidity within narrow price ranges can help minimize the impact of impermanent loss, as the price fluctuations that cause impermanent loss are less likely to occur within the specific ranges where your assets are allocated.
  • Tailored for “fat-tail”, lower-volatility assets: If you are providing liquidity for low-volatility assets, passive concentrated liquidity AMMs may offer better performance compared to constant product AMMs, as they are designed to provide minimal slippage and high capital efficiency for these types of tokens.
  • Better price impact: Concentrating liquidity within specific price ranges can lead to better price impact for trades within those ranges. This can result in lower slippage for traders, making the protocol more attractive to users and potentially increasing trading volume.

It's important to note that the benefits of migrating to a passive concentrated liquidity AMM will depend on factors such as the specific assets you're providing liquidity for, market conditions, and the effectiveness of the automated strategies managing the price ranges. However, in general, passive concentrated liquidity AMMs can offer higher capital efficiency, a more hands-off experience, and reduced impermanent loss compared to constant product AMMs.