Understanding Concentrated Liquidity (CL) in L2X

At the core of L2X's DEX mechanism is the innovative concept of "concentrated liquidity", borrowed from its origins as a fork of Uniswap v3. This method boosts swap efficiency. Unlike spreading liquidity over a wide price range, L2X lets liquidity providers focus their capital in specific price ranges, called "positions". This focused provision of liquidity allows traders to tap into deeper market layers, leading to narrower spreads and better prices.

In markets like stablecoin pairs where prices don't vary much, concentrated liquidity means providers focus their funds where it's traded most. This gives them higher fee earnings and traders get better prices. L2X uses "ticks" to manage this, dividing the price range into sections. Liquidity is used efficiently within these ticks as prices change. If prices move outside a set range, that liquidity doesn't earn fees until prices return.

This concentrated approach benefits traders and revitalizes the swaps market. It ensures large orders fit in smoothly, without big price shifts. This reliability attracts more fees for $veL2X voters and boosts the platform's health.