Automated Liquidity Concentration

Automated Liquidity Concentration (ALC) is an algorithm designed to adjust the concentration level of each liquidity pool, enhancing capital efficiency while ensuring that neither side of the reserve is not depleted. Unlike traditional price range-based methods, where liquidity providers set a specific price range for their liquidity's position, ALC doesn't rely on a fixed range. In traditional methods, if the price moves outside the selected range, liquidity providers won’t earn trading fees and may end up holding depreciating assets, hoping the price will return to their chosen range.

In ALC (Automated Liquidity Concentration), liquidity bins behave like stretchable containers that adapt based on market conditions. As trading activity stabilizes or price volatility decreases, the algorithm stretches the bins to cover wider price ranges—for example, evolving from 32x32 to64×64, 128×128, 256×256, and up to 512×512. This mechanism allows the system to maintain efficiency by concentrating liquidity where it's most needed while reducing unnecessary granularity in less active zones. The result is a scalable and adaptive liquidity structure that optimizes capital usage across various market conditions.

BIn Concepts

In ALC (Automated Liquidity Concentration), liquidity is organized into bins, which act as small segments along the price curve. Each bin is responsible for holding a specific amount of share, allowing the system to manage and reallocate liquidity precisely across active trading ranges.

In the ALC (Automated Liquidity Concentration) model, liquidity is divided into discrete units called bins, where each bin holds a specific share of the total liquidity pool. These bins are arranged along the price curve and dynamically adjusted using a sliding window mechanism that focuses liquidity around active trading zones. As the market price shifts, the window slides accordingly, and new bins are generated using the formula

$$New BinShare= (ShareofNextbin+ShareofLastbin )/2),$$

ensuring a smooth and balanced distribution of capital. This approach allows liquidity to concentrate where it’s most needed, improving capital efficiency while reducing manual effort from liquidity providers.

Trading Zone Mechanics

Liquidity concentration changes based on how long the price stays in defined zones:

Zone	Behavior
🔵 Blue	Starting point for concentration evaluation.
🟡 Yellow	If price holds here for > 255 seconds, liquidity is not concentrated in that 24 days period.
🔴 Red	Triggers the ALC's logic after > 255 seconds, and the range will be expanded immediately.

Hint: Zone-Based Behavior in ALC

• If the price stays in the blue zone for 24 consecutive days, the ALC system will begin to concentrate liquidity to increase capital efficiency.

• If the price enters the yellow zone and remains there for more than 255 seconds, then moves back to the blue zone, the 24-day concentration timer is paused, and no concentration will occur.

• If the price stays in the red zone for more than 255 seconds, the system will immediately expand the liquidity range, and the 24-day timer in the blue zone is reset to zero.