16d • General
📏 Range Width: Why Less Risk Means Less in Fees
On Wednesday's group coaching call, a member asked a smart question: if stablecoins barely move against each other, couldn't you put them in a liquidity pool and skip impermanent loss altogether?
Great question. Answering it shows how concentrated liquidity actually pays you, and why there's no free lunch in a pool.
🧩 Your CLP is an option
The way I think about a concentrated liquidity position (a CLP) is as an option. It's a derivative, and it comes with the same Greeks:
Theta = your fees. What you collect for keeping liquidity in range.
Gamma = your impermanent loss, your cost of volatility.
The only way you win as a CLP is if your theta is greater than your gamma. Your fees are literally what you get paid to take on impermanent loss risk.
🪙 Stablecoins still move a little
Even two stablecoins like USDC and USDT drift against each other by a few basis points. So in a stablecoin pool, a typical range is super narrow, just a hair either side of 1.00. A couple of basis points wide.
↔️ What happens when you go wide
Can you make that range wider? Sure. But when you widen your range, you shrink your gamma. Less gamma means less impermanent loss, and it also means less theta. Fewer fees.
In the clip I walk through a deliberately extreme example: a stablecoin range from 0.9 to 1.1. That is stupid wide. You'd have almost no gamma risk, and you'd earn almost nothing in fees.
📊 Why the fees dry up
Look at the liquidity shape of most stablecoin pools. Nearly all the liquidity is bunched tightly around the current price. The price only moves by basis points, so trades happen right there. If your range is spread far out to the sides, most of your capital sits where trading never happens, and the fees go to the LPs who are concentrated where the action is.
✅ The takeaway
Risk and reward in a CLP are the same dial. Narrow range: more fees, more gamma. Wide range: less gamma, fewer fees. You don't get compensated for risk you aren't taking. So before you set a range, decide how much gamma you're actually willing to carry, then judge whether the fees make that worth it.
🎙️ Questions like this one get answered live on our group coaching calls every Monday, Wednesday and Friday at 5 PM ET on Google Meet. Come for live Q&A on how to think through risk, entries and exits, and general crypto/DeFi questions. Join us here: https://www.skool.com/defiuniversity
Educational only — not financial advice. You keep self-custody of your assets. No guaranteed outcomes.
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📏 Range Width: Why Less Risk Means Less in Fees
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