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Modulis 4 Β· Concentrated liquidity
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Uniswap V3 β€” Concentrated Liquidity on Ethereum

ETH Uniswap V3

What is Uniswap V3?

In 2021, Uniswap launched V3 β€” the first concentrated liquidity protocol. It was a major breakthrough, because it let people choose which price range they wanted to provide liquidity in.

Why does this matter?

Uniswap V3 created a standard that almost everyone else later copied β€” Orca (Solana), PancakeSwap, and many more. It's like the iPhone β€” not the first phone, but the first one that changed everything.

How Uniswap V3 works

The tick system

Uniswap V3 divides the price space into small segments called ticks (the smallest price steps). Each tick equals a 0.01% price change.

TermWhat it means
TickThe smallest price unit (a 0.01% change)
Tick SpacingThe distance between active ticks
Position RangeYour chosen range
Active TickThe tick where the price currently sits

Simplified example (the real tick step is 0.01%, i.e. roughly $0.30 at $3,000; for clarity we show steps of $10 here): an ETH/USDC pool at $3,000.

Only LPs whose range covers the current tick earn fees.

Every position is an NFT

A unique Uniswap V3 feature β€” every LP position is an NFT (a unique digital object).

An NFT position = your ticket

Like a concert ticket β€” every one is unique: a different seat (price range), a different price (amount of liquidity). You can transfer this "ticket," or even sell it to someone else.

Fee Tiers

Uniswap V3 offers several fee levels. Each pool has exactly one tier.

Fee TierFeeBest for
0.01%Very lowStablecoin pairs (USDC/USDT)
0.05%LowSimilar tokens (ETH/stETH)
0.30%StandardMajor pairs (ETH/USDC)
1.00%HighExotic token pairs

How to choose?

How to open a position

  1. Connect to app.uniswap.org with MetaMask
  2. Click "Pool" and hit "New Position"
  3. Pick a pair β€” e.g., ETH/USDC
  4. Pick a fee tier β€” usually 0.30%
  5. Set your price range β€” e.g., $2,500–$3,500
  6. Enter the amount β€” e.g., 1 ETH + 3,000 USDC
  7. Confirm in your MetaMask wallet β€” you'll pay a gas fee
  8. You get an NFT β€” your position is active and collecting fees

Gas fees β€” mainnet vs Arbitrum

Gas used to be Uniswap V3's biggest complaint. Since Ethereum's Dencun upgrade (March 2024) that has changed: mainnet operations now cost cents, not tens of dollars.

ActionEthereum MainnetArbitrum (L2)Difference
Open a position~$0.05–$0.30~$0.01–$0.05Cheaper and steadier
Collect fees~$0.03–$0.20~$0.01Cheaper and steadier
Close a position~$0.03–$0.20~$0.01–$0.03Cheaper and steadier
Move the range~$0.05–$0.30~$0.01–$0.05Cheaper and steadier

These are typical figures β€” gas moves with network load and can spike many times over during congestion, so before a large operation it's worth a quick glance at etherscan.io/gastracker.

ℹ️
Mainnet gas no longer rules out small positions β€” it's cents per operation. We still like Arbitrum for LP: the same Uniswap V3, marginally cheaper, and L2 fees stay flat and predictable even when mainnet spikes during congestion. Switching networks is one click.

Arbitrum β€” a great home for Uniswap V3

Arbitrum is Ethereum's "fast lane" (a Layer 2):

Range strategies

Narrow range

Price: $3,000
Range: $2,900 – $3,100 (Β±3.3%)
Efficiency: ~30x

Upside: The largest share of fees, as long as the price stays in range. Downside: The price often "leaves" β€” you need to watch it constantly.

Medium range

Price: $3,000
Range: $2,500 – $3,500 (Β±17%)
Efficiency: ~6x

Upside: A good balance between earnings and stability. Downside: Lower earnings than a narrow range.

Wide range

Price: $3,000
Range: $2,000 – $5,000 (βˆ’33% / +67%)
Efficiency: ~3x

Upside: Rarely needs moving. A calm position. Downside: The lowest earnings.

Uniswap V3 in our strategies

On the platform, Uniswap V3 is used in Strategy A with ETH:

ParameterValue
NetworkEthereum / Arbitrum
PairETH/USDC
Fee tier0.30%
Range typeSingle-sided USDC (below the current price)
GoalGenerating income

Uniswap V3 vs Orca Whirlpool

Both use the same concentrated liquidity idea. The main difference is the network:

DeFi Risk OS supports both β€” depending on whether you're working with ETH or SOL.

Risks and how to manage them

Uniswap V3 is one of the most battle-tested DeFi protocols β€” smart contract risk is low. The remaining three risks are known, and each has a concrete lever:

RiskLevelExplanation
Smart contract bugLowAudited, running since 2021
IL (loss)MediumConcentrated LP = larger IL
Gas feesLowCents per operation; can spike during congestion
Price leaves the rangeMediumFees stop

Every risk has a solution. You're not meant to fear it β€” you're meant to learn how to manage it.

Once you understand the tick system, fee tiers, and range types, you can look at any pool and decide for yourself which range suits you β€” narrow for attention, or wide for calm.

Next up: Let's look at what Uniswap V4 brings β€” a new version with extra features.

Quick check
What's the recommended Fee Tier for the ETH/USDC pair on Uniswap V3?
Practice task
0 / 5
Explore a Uniswap V3 pool and sketch a paper range plan

See what concentrated liquidity looks like in the wild. Takes about 15 minutes, no wallet needed β€” just exploring and paper.

We're ONLY looking β€” don't open a position, and you don't need to connect a wallet. Uniswap V3 runs on Ethereum/Arbitrum, and real positions there cost gas β€” we'll use a simulator for practice later.

This is learning, not investing β€” use only small amounts you treat as tuition.

You just compared two fee tiers by earnings-per-dollar and sketched three range scenarios β€” that's how an LP who manages risk thinks, instead of blindly chasing APR.