Rewards are proportional to liquidity share, time in range, and the effectiveness of your position’s price range.
Concentrated Liquidity Reward Mechanisms
Fee Distribution Algorithm
Trading fees are distributed proportionally based on liquidity share and time in range:contracts/LiquidityRewards.sol
Fee Collection and Distribution
Concentrated liquidity positions automatically collect fees as trades occur within their price range.contracts/FeeCollection.sol
Reward Calculation
Fee Distribution Formula
Fees are distributed based on the following formula:- FeeGrowthInside = Global fee growth - Fee growth outside position range
- Liquidity = Position’s liquidity amount
- 2^128 = Fixed-point precision factor
Time-in-Range Multipliers
Positions earn bonus multipliers based on time spent in range:Time in Range | Multiplier | Description |
---|---|---|
90%+ | 2.0x | Maximum bonus for consistent in-range positions |
75%+ | 1.5x | High bonus for mostly in-range positions |
50%+ | 1.2x | Moderate bonus for balanced positions |
Less than 50% | 1.0x | Base rate for out-of-range positions |
Position Effectiveness
The effectiveness of a concentrated liquidity position is calculated as:- Provide liquidity in high-traffic price ranges
- Maintain consistent in-range status
- Contribute significant liquidity relative to the pool
Best Practices
1
Choose optimal price ranges
Concentrate liquidity around current price for maximum fee earnings.
Use the ShibaSwap interface to visualize optimal price ranges and liquidity distribution.
2
Monitor position status
Regularly check if your position is still in range and earning fees.
Out-of-range positions don’t earn fees and may suffer impermanent loss.
3
Collect fees regularly
Collect accumulated fees to compound your earnings.
Regular fee collection helps maximize your returns from concentrated liquidity.
4
Optimize range width
Balance between fee earnings and impermanent loss risk.
Narrower ranges earn more fees but have higher impermanent loss risk.
Concentrated Liquidity Optimization
Range Optimization
Range Optimization
Strategy: Position ranges around high-traffic price levels.Implementation:
- Analyze historical price movements
- Focus on support and resistance levels
- Use multiple narrow ranges instead of one wide range
Fee Tier Selection
Fee Tier Selection
Strategy: Choose appropriate fee tiers based on volatility.Implementation:
- High volatility pairs: Use 1% fee tier
- Medium volatility pairs: Use 0.3% fee tier
- Stable pairs: Use 0.05% fee tier
Time-in-Range Maximization
Time-in-Range Maximization
Strategy: Maximize time spent in range for bonus multipliers.Implementation:
- Use wider ranges during high volatility
- Rebalance positions when price moves significantly
- Monitor and adjust ranges based on market conditions