I just realized that many liquidity providers in DeFi are still using the old model, allocating funds across all possible price levels. Actually, there’s a much better way called CLMM, and it’s changing how people earn fees in DeFi.

What is CLMM? Simply put, it allows you to place liquidity in a specific price range instead of spreading funds everywhere. Think of it this way: with the standard AMM model (the old), you open a water shop at every mile along the highway, including deserted areas with no traffic. But with CLMM, you only open shops in busy sections of the road.

What’s the advantage of CLMM? Huge capital efficiency. You put in $1,000 but can earn fees equivalent to someone else putting in $5,000 with the old model. The reason is that your funds are concentrated where actual trading happens, so every dollar is working at full capacity. That’s why Uniswap V3 is so popular.

Mechanically, CLMM works by dividing the price range into small steps called ticks. When you create a position, you choose a low tick and a high tick to define the price zone. As long as the market price stays within that zone, you continuously earn fees. But what if the price moves outside? Your position becomes useless, earning nothing until the price returns or you adjust it.

But don’t think CLMM has no risks. It’s much more complex than the traditional way. If the market moves quickly in an unfavorable direction, temporary losses can multiply because your funds are concentrated. You need to monitor the market regularly, select appropriate price ranges, and even rebalance your position as volatility occurs. It’s no longer just “set and forget.”

As I said, what CLMM really is, is an advanced way to provide liquidity. It makes the DeFi market deeper and more efficient. Traders get better prices, liquidity providers earn higher profits. But the cost is actively managing your position instead of sitting back and earning passive income.

If you’re new to DeFi, I recommend starting with a small capital or trying the standard AMM model first. Once you truly understand the price range and ticks, then switch to CLMM. It’s not too difficult, but you need to learn carefully.