What is DLMM?
A Discretized Liquidity Market Maker (DLMM) divides the price curve into discrete bins. Each bin represents one fixed price and holds its own token reserves.
Liquidity providers choose which bins to fund. Traders use the liquidity in the active bin first, then move through the next available bins when a swap requires more liquidity. This lets LPs concentrate capital around the prices where they expect trading to occur.
| Feature | DLMM | Concentrated liquidity |
|---|---|---|
| Price unit | Fixed-price bins | Price ranges between ticks |
| Swap behavior | Fixed price within a bin, then steps to another bin | Price changes continuously through active liquidity |
| Position format | Fungible shares in each funded bin | NFT position covering a tick range |
| LP fee accounting | Retained in bin reserves and reflected in share value | Accrued to the position for collection |
How bins work
Bin step
The bin step controls the percentage difference between neighboring bins. A bin step of 1 represents one basis point, or 0.01%, between adjacent price levels. A larger bin step creates more distance between bins.
Each pool has one active bin:
- Bins on one side of the active price hold one token.
- Bins on the other side hold the other token.
- The active bin can hold both tokens.
The exact token on each side depends on the pool's token ordering.
Price movement
A swap executes at one fixed price while it remains within a bin. When that bin no longer has enough liquidity for the trade, execution continues at the next non-empty bin. Empty bins can be skipped.
Crossing more bins means greater price impact. The app's minimum received and slippage settings protect users if the available liquidity or price changes before execution.
Providing liquidity
Choosing a range
An LP selects a range of bins and deposits the token amounts needed for that range. The position earns fees only in bins used by swaps.
A narrow range concentrates more capital near the current price and can earn more while active, but it is also more likely to move out of range. A wider range covers more price movement but spreads the same capital across more bins.
As the market moves:
- Liquidity near the active bin can hold both tokens.
- Liquidity away from the active bin becomes one-sided.
- A position outside the traded bins does not earn swap fees until trading returns to its range.
Fees auto-compound
The LP portion of swap fees stays inside the bins and increases the reserves backing their shares. LPs do not make a separate claim for these fees; they are received when liquidity is removed.
Adding liquidity with a token ratio that differs from the active bin's composition can incur a composition fee. The app displays transaction details before submission.
Removing liquidity
Removing liquidity burns the holder's bin shares and returns the corresponding share of the bin reserves. Only the holder or an approved operator can remove them.
Fees and rewards
DLMM swap fees combine:
- A base fee determined by pool configuration.
- A variable fee that reacts to recent on-chain bin movement and trading activity.
Dynamic fees respond to onchain bin movement and trading activity and remain capped by contract-defined limits. The current fee is displayed with each pool in the app.
| Pool state | LP share of swap fees | Voter/protocol share | Emissions |
|---|---|---|---|
| Fee-only (ungauged) | 95% | 5% to the protocol | None |
| Gauged | 0% | 100% to voters | Eligible |
Risks
DLMM positions can:
- Become mostly or entirely one token as swaps move through their bins.
- Stop earning fees when trading activity moves outside their selected bins.
- Underperform simply holding the tokens when their relative prices move.