About Concentrated Liquidity

Introduction

The core concept behind EVO is concentrated liquidity—a system where liquidity providers (LPs) allocate capital within specific price ranges rather than across the entire price spectrum. This contrasts with earlier AMM models that distributed liquidity uniformly between 0 and infinity, regardless of how much of that range was actually used in trading.

In practice, only a small portion of the total liquidity in traditional AMMs is used efficiently. For example, in stablecoin pairs where prices rarely move far from parity, the vast majority of liquidity outside the typical $0.99–$1.01 range is unused—effectively idle capital.

EVO allows LPs to define custom price ranges for their liquidity. In a stablecoin/stablecoin pool, for instance, an LP can focus their capital specifically within the $0.99–$1.01 band. This increases liquidity density where it's most needed, reducing price impact for traders and maximizing fee earnings for LPs. Each custom range is called a position, and LPs can maintain multiple positions per pool to tailor their strategies.

Active Liquidity

As market prices move, the spot price may enter or exit the price ranges defined by LPs. A position is considered active when the current price falls within its specified range, and only active positions are eligible to earn fees.

When the price exits a position’s range, the underlying liquidity becomes inactive—no longer participating in trades or generating fees. As swaps occur and prices shift, LPs may end up holding one asset entirely, depending on the direction of trades. If the market re-enters their range, their position becomes active again and resumes earning fees.

LPs have the flexibility to create multiple positions with different ranges, enabling a variety of custom liquidity provisioning strategies. Concentrated liquidity allows the market to self-regulate liquidity distribution, as LPs are incentivized to place their liquidity where it will be both active and profitable.

Ticks

EVO’s implementation of concentrated liquidity is powered by a system of ticks, which divide the price spectrum into discrete intervals.

Each tick represents a boundary in price space, spaced so that moving up or down by 1 tick corresponds to a 0.01% price change. When creating a position, LPs select a lower tick and an upper tick to define the active price range for their liquidity.

During swaps, the protocol processes trades by consuming liquidity from the current tick interval. As the price moves and reaches the boundary of the current tick, the protocol crosses into the next tick. If any LP positions use the new tick as a boundary, their liquidity is activated as the price enters the tick range.

Tick spacing varies by fee tier. Lower fee pools allow tighter tick intervals, enabling greater precision in liquidity placement and higher capital efficiency. Higher fee tiers use wider tick spacing, which may be more suitable for volatile or long-tail assets where fewer trades are expected.

Crossing active ticks incurs additional gas costs due to the need to activate or deactivate liquidity positions. However, inactive ticks themselves do not impact swap costs.

For pools where tight price control is essential—such as stablecoin pairs—narrow tick spacing significantly improves execution quality. More granular liquidity placement leads to lower slippage and better prices for traders.