CLMM model

With the "Liquidity Book," liquidity providers can choose to provide liquidity within a specific price range, known as concentrated liquidity. For example, in the case of USDC/USDT, if an LP chooses to provide liquidity between $0.99 and $1.01, they can earn trading fees as long as the price remains within that range. The advantages and benefits of concentrated liquidity were demonstrated perfectly during the ARB airdrop event, in which Joe V2 and Uni V3 both used concentrated liquidity AMMs. Although there are slight differences between Joe V2 and Uni V3, these differences can be found in the details of the Bin liquidity and Tick liquidity, which can be referenced at TraderJoe and Uniswap, respectively.

It should be noted that the introduction of concentrated liquidity into new AMM designs allows LPs to have more fine-grained control over their LP positions. Therefore, using concentrated liquidity to simulate limit orders requires continuous observation and monitoring because orders must be removed after execution to settle the final transaction. Additionally, concentrated liquidity publicly reveals your trading strategy and is subject to all on-chain execution platform memory pool issues, such as transaction failures or frontrunning.

Overall, the concentrated liquidity design provides passive and active market makers with excellent flexibility and functionality, low spreads, and always-on liquidity, without the cost or complexity of traditional market makers, even for long-tail markets. It provides users with opportunities and rewards for passive liquidity provision. The Bin mathematics and liquidity, based on the CSMM, can also support the free combination pricing of any FT and NFT and the universal routing combination of ERC1155, unifying liquidity pools.

Wombat's open liquidity pool design aggregates liquidity into a shared pool and achieves complex balance through coverage, providing higher capital efficiency.