What is uniswap v3

What distinguishes Uniswap v3 from v2 is “concentrated liquidity”

In Uniswap v2, price was determined by the whole liquidity pool. So, same ratio \(X1 \times X2 = C\) was used in every price interval.

In Uniswap v3, liquidity providers can provide liquidity in a specific price interval. This means that the AMM algorithm behaves differently in every price sections.

This gives Uniswap v3 to be able to provide relatively high liquidity compared to the original mechanism.

For example, in the case of stable coins, price will probably be in $0.99 ~ $1.01. So, people will concentrate their assets in mid price to earn more transaction fees.