For Beginners

Tutorial: Create and Manage Sushi's v3 Concentrated Liquidity Pool

Learn how to open, manage & close a concentrated liquidity position

  • illumipfp.jpg
Concentrated Liquidity Pool.png

Become a crypto chef with SushiSwap! Sushi is one of the most used and reliable decentralized exchanges, deployed across 10+ blockchains and supporting thousands of tokens. You can trade, earn, stack yields and safely move assets across chains, all on one decentralized, community-driven platform.

Welcome to the home of DeFi: Sushi

Last week, we released concentrated liquidity pools - a brand new pool type that provides our users with high capital efficiency when they LP on Sushi. In this article, we’re going to walk through the new UI and learn how to create and interact with a concentrated liquidity pool, as well as how to manage a position within one.

How To Create A Concentrated Liquidity Pool

Creating a concentrated liquidity pool on the new UI is a short and simple process, especially if you have created pools on Sushi before. Let’s walk through creating one together:

Step 1: First, head over to the Sushi app and select Enter App in the upper right corner. Next, make sure your wallet is connected and select the Pools tab on the upper left corner of the screen to be brought to the pools page.

Step 2: Once on the Pools page, select the New Position button as you would if you were creating any other type of pool. This will bring you to the Add Liquidity page, where you can create a concentrated liquidity pool (or a position in one).

Step 3: Next, you will need to select the network you would like to create the pool on and the pair you’d like to create the pool for.

Step 4: Then, choose the fee tier you would like your pool to adhere to, which can be anywhere from 0.01% all the way up to 1.00%. As a general rule of thumb, lower fee tiers are better for more stable pairs, while higher tiers are better for more exotic (read: volatile) pairs. If you are unsure which side of the spectrum to choose, 0.30% is a solid middle ground.

Up to this point, creating a concentrated liquidity pool has been the same as creating any other pool type on Trident - this is where things diverge. After your fee tier selection, you will be directed to both initialize your new pool and to set your price range where you will earn fees from.

Step 5: Simply adjust the desired range to provide liquidity for by using the two input boxes to define the range's minimum and maximum values. This will automatically update the visualization of the price range on the screen for review. Remember, the price range you are selecting represents the degree to which you think the price will fluctuate over time; don’t rush, make an informed choice.

Once you’ve determined an appropriate price range, initialize your new pool by setting its initial price (which must be within the range) and fill out the amount of liquidity you would like to provide of each asset. With everything now filled out, select Preview to get one final summary of the pool you’re about to create; if everything looks correct, all there is left to do is select Add Liquidity.

Note: If adding liquidity to a pool that already exists, the option to initialize the pool will not populate.

Congratulations, you have officially created a concentrated liquidity pool!

How To Create Positions Within Existing Concentrated Liquidity Pools

You can open a position in a concentrated liquidity pool easily via the Pools page, where you can look through all of the available pools filtered by chain; choose the SushiSwap V3 filter to find the concentrated liquidity ones. Selecting an individual pool from this screen will bring you to that pool’s specific page which shows any relevant pool-specific analytics and rewards, as well as options for creating and removing positions within them.

Step 1: Same as before, head over to the Sushi app and select Enter App in the upper right corner. Next, make sure your wallet is connected and select the Pools tab in the upper left corner of the screen.

Step 2: This time, look through the pools available to see if there is one you’re interested in providing liquidity for; you can search for the specific asset(s) in the search bar above the pools, or utilize the plethora of filtering options provided to make it easier for you to find exactly what you’re looking for. When you find the appropriate pool, you can select it to be brought to that pool’s specific page.

Step 3: From here, adding a concentrated liquidity position is the same as before: there are a ton of different fine tuning options to choose from, all of which you should look at and play around with before submitting your decision. Once you have had a chance to poke around and determine the price range you want to provide liquidity for, use the minimum and maximum inputs to define the bounds of the range and select Provide Liquidity. That’s all there is to it!

How To Remove Your Liquidity From A Concentrated Liquidity Pool

When you would like to remove your liquidity from a pool, it is very simple to do: first, navigate to the appropriate Pools page with your wallet connected to the correct network. Once there, select the My Positions option located near the top of your screen.

Select the pool you’re looking to remove the liquidity from and click on it - this will bring you back to that position’s specific page. All you have to do now is select the Decrease Liquidity tab at the top, choose the percentage amount of liquidity you want to remove, and select Remove.

You should now have received your original assets back in your wallet!

Managing Your Position

Providing liquidity in a pre-defined price range has its benefits, the main one being that it is much more capital efficient and you can earn more yield (percentage-wise) off of fees than other pool types with less capital. However, this also means that the position needs to be more actively monitored than a traditional LP position does; remember that if the price deviates outside of the range that you will not earn fees and that portion of your position (half the pair) will be sold and converted to the other half of the pair. Vigilance is the best policy when it comes to concentrated liquidity positions.

Sushi is building a decentralized, comprehensive DeFi ecosystem complete with AMM, cross-chain capabilities, NFT artist platform and more. Follow our socials to keep up with our product launches and find out more on how you can make the most of your cryptocurrency assets with Sushi’s secure and powerful DeFi tools!

Exchange & XSwap | Docs | Discord | Telegram | Newsletter | Youtube | Tutorial | Github