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Liquidity Zones

Custom price ranges where you concentrate liquidity in MegaPools. Liquidity Zones enable capital-efficient liquidity provision by focusing assets where trading actually occurs.

At a Glance​

  • Define specific price ranges for your liquidity
  • Earn fees only when price is within your zone
  • Narrow zones earn higher fees per dollar but require more management
  • Wide zones earn more consistently but with lower capital efficiency
  • Zones represented in ticks (discrete price points)
  • Adjust zones anytime by modifying position

Concept​

Traditional AMMs spread your liquidity from price 0 to infinity. Most of that liquidity never participates in trades.

Liquidity Zones let you concentrate capital in price ranges where you expect trading:

Traditional AMM:
0 ============================================ ∞
(Liquidity spread thin across all prices)

Concentrated Liquidity:
      $1800 [================] $2200
      (Liquidity dense in selected zone)

When price is in your zone, your capital earns fees. When price moves outside, you stop earning until it returns.

How Zones Work​

Zone Boundaries​

Each Liquidity Zone has two boundaries:

Lower Bound: Minimum price where your liquidity is active.

Upper Bound: Maximum price where your liquidity is active.

Example:

  • Token pair: ETH/USDC
  • Lower bound: $1,800
  • Upper bound: $2,200
  • Your liquidity is active when ETH trades between $1,800 and $2,200

Zone Width​

Zone width determines capital efficiency and management requirements:

Narrow Zones (e.g., ±5% from current price):

  • Highest capital efficiency
  • Earn maximum fees when active
  • Risk: Price easily moves outside zone
  • Requires frequent rebalancing

Medium Zones (e.g., ±15% from current price):

  • Balanced efficiency
  • Good fee earnings with moderate management
  • Suitable for most LPs

Wide Zones (e.g., ±50% from current price):

  • Lower capital efficiency
  • Consistent fee earnings
  • Minimal management required
  • Suitable for passive LPs or volatile pairs

Multiple Positions​

You can create multiple positions in the same pool with different zones:

Position 1: $1900 - $2100 (narrow, active management)
Position 2: $1600 - $2400 (wide, passive income)
Position 3: $2000 - $2050 (very narrow, short-term speculation)

This strategy combines high efficiency with risk management.

Choosing Your Zone​

Based on Price Expectations​

Stable Pairs (e.g., USDC/USDT):

  • Use very narrow zones (e.g., 0.995 - 1.005)
  • Price rarely moves outside
  • High capital efficiency with low management

Volatile Pairs (e.g., ETH/USDC):

  • Use wider zones (e.g., ±20-30%)
  • Balance efficiency with active time
  • Consider automated rebalancing

Based on Management Style​

Active Management:

  • Narrow zones for maximum efficiency
  • Monitor price movement daily
  • Rebalance frequently (economical on MegaETH)
  • Higher potential returns

Passive Management:

  • Wide zones spanning expected price range
  • Check weekly or monthly
  • Minimal rebalancing
  • Lower but more stable returns

Based on Risk Tolerance​

Conservative:

  • Wide zones that rarely exit
  • Focus on stable, high-volume pairs
  • Accept lower efficiency for predictable earnings

Aggressive:

  • Narrow zones for maximum efficiency
  • Willing to rebalance frequently
  • Higher returns but more active management

Ticks and Tick Spacing​

Liquidity Zones are defined using ticks (discrete price points):

What Are Ticks?​

Each tick represents a 0.01% price change. Tick system allows precise zone definition without floating-point issues.

Example:

  • Tick 0 = Reference price
  • Tick 100 = +1% from reference
  • Tick -100 = -1% from reference

Tick Spacing​

Different fee tiers have different tick spacing:

0.05% Fee Tier: Tick spacing = 10 (0.1% increments)
0.3% Fee Tier: Tick spacing = 60 (0.6% increments)
1% Fee Tier: Tick spacing = 200 (2% increments)

Lower tick spacing allows more precise zones but increases gas costs for pool operations.

Setting Zone Boundaries​

When creating a position, you specify:

  1. Lower tick (must be multiple of tick spacing)
  2. Upper tick (must be multiple of tick spacing)

The interface handles tick math automatically - you enter prices, it converts to ticks.

Zone Status​

Your Liquidity Zone can be in three states:

Active (In Range)​

Current price is within your zone boundaries. Your liquidity:

  • Participates in swaps
  • Earns fees
  • Comprises both tokens in proportion to current price

Out of Range (Below)​

Price fell below your lower bound. Your position:

  • Doesn't participate in swaps
  • Doesn't earn fees
  • Comprises 100% Token B (quote token)

Out of Range (Above)​

Price rose above your upper bound. Your position:

  • Doesn't participate in swaps
  • Doesn't earn fees
  • Comprises 100% Token A (base token)

Capital Efficiency​

Capital efficiency measures how much of your deposit actively earns fees:

Traditional AMM:

ETH/USDC Pool
Price: $2000
Your $10,000 deposit actively trading: ~$500 (5%)
Capital efficiency: 5%

Concentrated Liquidity (±10% zone):

ETH/USDC Pool
Price: $2000
Zone: $1800-$2200
Your $10,000 deposit actively trading: ~$9,500 (95%)
Capital efficiency: 95%

Result: 19x more effective liquidity per dollar.

Zone Strategy Examples​

Stable Pair Strategy​

Pair: USDC/USDT
Current Price: 1.0000
Zone: 0.9990 - 1.0010
Width: 0.2%

Rationale: Price rarely exceeds $0.001 variance. Ultra-narrow zone captures most volume with maximum efficiency.

Management: Check monthly. Rebalance only if depeg event occurs.

Blue Chip Strategy​

Pair: ETH/USDC
Current Price: $2000
Zone: $1800 - $2200
Width: 20%

Rationale: Balances efficiency with reasonable active time. ETH typically doesn't move >20% rapidly.

Management: Check weekly. Rebalance if price approaches boundaries.

Volatile Pair Strategy​

Pair: NEWTOKEN/ETH
Current Price: 0.05 ETH
Zone: 0.03 - 0.08 ETH
Width: 100%

Rationale: New token prices swing wildly. Wide zone ensures position stays active.

Management: Check daily. Tighten zone as volatility decreases.

Mean Reversion Strategy​

Pair: ETH/USDC
Current Price: $2000 (oversold)
Zone: $2000 - $2400
Width: 20% (asymmetric, above current)

Rationale: Expect price to revert upward. Position captures fees during recovery.

Management: Close when price reaches expected range. Not a passive strategy.

Rebalancing Zones​

When price moves outside your zone, consider rebalancing:

Manual Rebalancing​

  1. Remove liquidity from current position
  2. Select new zone boundaries around current price
  3. Add liquidity with adjusted zone
  4. Receive new LP NFT

Automated Rebalancing​

Deploy a Strategy Mode that rebalances automatically:

  • Monitors price continuously
  • Rebalances when zone becomes inactive
  • Adjusts zone width based on volatility
  • No manual intervention required

CLM guide →

Rebalancing Costs​

On MegaETH, rebalancing costs:

  • Remove liquidity: ~ $0.003
  • Add liquidity: ~ $0.005
  • Total: ~ $0.008

Ultra-low costs make frequent rebalancing economically viable.

Zone Visualization​

The MegaFi interface displays zone information:

Price Chart: Shows current price, your zones, and historical price movement.

Liquidity Distribution: Histogram showing where all liquidity is concentrated across price ranges.

Zone Status Indicator: Green (active), Red (out of range), with distance to boundaries.

Expected Fee Earnings: Projected APR based on current volume and your zone position.

Advanced Zone Strategies​

Layered Positions​

Create multiple positions with overlapping zones:

Position 1: $1950 - $2050 (core, narrow)
Position 2: $1850 - $2150 (buffer, medium)
Position 3: $1700 - $2300 (safety, wide)

Benefits:

  • Core position maximizes efficiency
  • Buffer provides insurance
  • Safety ensures you always earn some fees

Asymmetric Zones​

Position zones differently based on bias:

Bullish Bias:

Current: $2000
Zone: $2000 - $2500 (favors upside)

Bearish Bias:

Current: $2000
Zone: $1500 - $2000 (favors downside)

Risk: If wrong, position quickly goes out of range.

Seasonal Adjustment​

Adjust zone width based on market conditions:

Low Volatility Period: Narrow zones for max efficiency.

High Volatility Period: Wider zones to stay active.

Consolidation: Very narrow zones around support/resistance.

Trend: Asymmetric zones favoring trend direction.

FAQ​

What's the optimal zone width?
Depends on pair volatility and management preference. Start with ±15% for standard pairs.

Can I adjust my zone without removing liquidity?
No. You must remove liquidity and create a new position with different boundaries.

Do I lose fees if price exits my zone?
No. Accumulated fees remain in your position. You just stop earning new fees until price returns.

Should I have one wide zone or multiple narrow zones?
Multiple narrow zones often perform better but require more transactions. Wide zones are simpler.

How often should I rebalance?
When position goes out of range or when rebalancing cost is < 5% of expected additional fees.

Next Steps​

Apply Liquidity Zone concepts:

Precision capital deployment.