Concentrated Liquidity

Concentrated liquidity in Napier allows LPs to allocate funds into bespoke implied-APY ranges, maximizing capital efficiency while minimizing impermanent loss (IL).

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Mechanism

• Similar to Pendle, Napier’s AMM accounts for the natural appreciation of PT toward its underlying as maturity approaches.

  • This mitigates time-dependent IL and ensures that at maturity, LP positions are economically equivalent to holding the underlying asset.

• IL from swaps is further reduced because PT and the underlying are highly correlated.

  • For example, PT-stETH vs stETH trades within a predictable yield range, unlike the higher volatility of spot prices.

• By concentrating liquidity into specific yield bands, LPs can provide much deeper liquidity within realistic ranges (e.g., 0.5–7% APY for staked ETH), enabling larger trades with lower slippage.

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Benefits

• For LPs: Concentration reduces wasted capital, generates dual yield from PT and YT swaps within the same pool, and minimizes IL exposure.

• For Traders: Consolidated liquidity in a single PT/underlying pool ensures greater depth and lower slippage, enabling larger trades with more predictable pricing.

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Example

If an LP expects the implied yield of a staked ETH market to remain between 0.5–7%, they can concentrate liquidity within that band.

• This provides higher capital efficiency and stable returns while avoiding unnecessary exposure outside the expected range.

• If yields move beyond 7%, liquidity in that direction becomes thin, limiting further trading until the range is adjusted in a new market.