Concentrated Liquidity Market Maker

Definition ∞ A Concentrated Liquidity Market Maker (CLMM) is an automated market maker that allows liquidity providers to allocate their capital within specific price ranges. This differs from traditional AMMs that distribute liquidity uniformly across all possible prices. By concentrating liquidity, providers can achieve higher capital efficiency and potentially earn greater trading fees within their chosen ranges. This mechanism enhances market depth and reduces slippage for traders operating within those active price boundaries.
Context ∞ The situation surrounding CLMMs in decentralized finance highlights their increased capital efficiency but also the heightened risk of impermanent loss for liquidity providers. Key debates involve optimizing price ranges and developing strategies to mitigate losses during volatile market conditions. Future developments include advanced CLMM designs that offer dynamic rebalancing, automated range management, and improved analytics for liquidity providers.