1INCH: 85% of concentrated liquidity on DEXs is underutilized, new research finds

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New data reveals: in DeFi, over $500 mln, or nearly one third of tracked liquidity, sits fully idle. Does DeFi have enough liquidity? Yes. Is that liquidity working efficiently? No. Recent research by on-chain analytics platform Dune (commissioned by 1inch) suggests that 85% of concentrated liquidity on decentralized exchanges is underutilized at any given time. That’s about $1.6 bln of the $1.84 bln tracked. And around $542 mln of that sits fully idle and out of range in an average week. This is a structural problem for DeFi. Liquidity pools have helped decentralized markets grow, but as tokenized assets and institutional capital move on-chain, the industry needs a more efficient mechanism. Dune analyzed four major concentrated-liquidity venues: The research covered seven networks: Ethereum, Base, Arbitrum, BNB Chain, Unichain, Polygon and Optimism. Dune took weekly snapshots between January 6 and June 30, 2026. For each venue, researchers selected approximately 200 of the largest pools by trailing 30-day trading volume and kept that group fixed across the 26-week period. This produced a panel of between 559 and 776 pools, with approximately $1.84 bln in average tracked capital. Researchers also analyzed three constant-product venues - Uniswap v2, PancakeSwap v2 and Aerodrome’s basic pools - using the same methodology. These pools served as a baseline for assessing concentrated liquidity. Concentrated liquidity lets liquidity providers choose specific price ranges in which their capital is available for trades. The model can improve capital efficiency when the market price stays inside the selected range. But once the price moves outside that range, the position stops supporting trades and earning fees. Across the 26 weeks covered by the research, an average of 29.5% of concentrated-liquidity capital was fully out of range. The idle share generally remained between 25% and 35%, briefly rising to almost 41% in early February. The cost to liquidity providers is significant. Dune estimates that out-of-range LPs forgo between $185 mln and $195 mln in fees annually. The estimate was calculated by applying the blended in-range fee APR of approximately 40% over the period to the out-of-range TVL. The calculation used the fee tiers of Uniswap and PancakeSwap pools and bounded estimates for Aerodrome’s dynamic fees. “Due to structural inefficiencies in DeFi, liquidity providers are leaving billions of dollars in underutilized capital and millions of dollars in fees on the table. If the industry is serious about bringing TradFi’s trillions on-chain, solving this needs to be priority number one,” said Sergej Kunz, 1inch co-founder. “Shared liquidity models and the advent of AI have the potential to create a far more efficient future for liquidity providers. That's why 1inch is set to launch Aqua, so LPs can maximize their capital and earn more from every dollar.” "Decentralized exchanges have grown into one of the deepest, most liquid markets in crypto, and it is now competing with centralized exchanges and traditional trading venues,” added Filippo Armani, Research Lead at Dune. “What our research shows is that it has reached this scale even though much of its liquidity is not yet fully at work. It is easy to imagine what these venues will do as efficiency improves and institutional capital keeps arriving. Getting there depends on measuring liquidity precisely across every venue and chain, possibly real time, which is exactly the kind of on-chain visibility Dune has been building.” The research found that smaller positions were more likely to be out of range. Around 54% of positions worth less than $1,000 were idle, compared with approximately 26% of positions worth more than $1 mln. But the largest positions still accounted for most of the idle capital. Positions above $1 mln held approximately 47% of all idle liquidity, equivalent to roughly $260 mln. Positions worth more than $100,000 accounted for around 76%. This suggests that underutilization is not limited to inexperienced or small-scale liquidity providers. Large, well-funded positions also drift outside their chosen ranges and stop earning fees. The research also examined why concentrated-liquidity positions move out of range. The strongest factor was not volatility itself, but how far the market price moved in one direction over the week. A highly volatile market can rise and fall before returning close to its starting point, leaving many positions in range. By contrast, a relatively calm but consistent price move can push large amounts of liquidity outside their selected ranges. In other words, distance strands liquidity more reliably than short-term market turbulence. The findings did not identify one protocol that consistently performed better across all markets. When researchers compared the same trading pairs across different venues, the ranking changed from pair to pair. No single DEX was reliably more or less idle than the others. Uniswap v4, despite being a newer architecture, recorded an idle share of around 30%, broadly in line with Uniswap v3. Stablecoin pools also averaged around 30% idle liquidity. Although stablecoins are designed to remain close in price, LPs often choose extremely narrow ranges only a few basis points wide. Even a small movement away from the peg can therefore push liquidity out of range. Most out-of-range capital was held in individual wallets. On Uniswap v3, individually owned positions accounted for approximately 82% to 94% of idle capital across the networks where ownership could be attributed. Capital managed by contracts, including active liquidity managers and market-making systems, stayed in range more consistently. Incentives also helped. Aerodrome’s staked liquidity recorded the lowest idle rate in the study, at approximately 16%, because rewards are directed toward in-range capital. However, incentives reduced the problem rather than eliminating it. DeFi needs liquidity that remains available across changing market conditions. It needs models that reduce fragmentation, improve capital utilization and give LPs more opportunities to earn fees from the assets they already hold. The next stage of DeFi will not be measured only by how much liquidity is deposited. It will be measured by how much of that liquidity is actually working. Access liquidity across DeFi in the 1inch dApp . Disclaimer: This report was commissioned by 1inch and prepared independently by Dune. The methodology, data collection, and analysis are Dune's own, and the findings represent Dune's independent conclusions. References to third-party protocols, including Uniswap, PancakeSwap, and Aerodrome, are made solely for research and informational purposes and do not imply any affiliation or endorsement. This report does not constitute financial advice.

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Recent studies show that 85% of concentrated liquidity in decentralized exchanges (DEXs) is underutilized and left idle. This indicates a significant decline in capital efficiency and exposes structural limitations in the DeFi market. Investors need to pay attention to protocols that solve the liquidity fragmentation problem.

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