Uniswap V2 vs V3 Liquidity: Capital Efficiency
**Uniswap V2** spreads liquidity across all prices (50/50). **V3** lets LPs concentrate in a range—higher fee share when price stays in range, but **out-of-range** positions earn nothing and behave differently for IL.
Step by step
1. Define your range
Narrow ranges amplify fees and IL when price exits.
2. Compare fee APR to IL
Model IL at ±10–30% moves before chasing V3 APY.
3. Rebalance cost
Gas and time to reposition ranges eats passive edge.
V2 vs V3 LP
V3 rewards active managers; V2 suits set-and-forget if pair is stable.
- V2: Full curve; simpler; lower capital efficiency.
- V3: Concentrated liquidity; range risk; multiple fee tiers.
Use our calculators
Common mistakes
- Setting ranges too tight
- Ignoring out-of-range downtime
FAQ
Is V3 always better?
Only if you monitor range and fees exceed repositioning + IL costs.