85% of concentrated DeFi liquidity idle, $150M/year loss

Dune conducted a study, commissioned by 1inch, that reconstructed liquidity positions in roughly the top 200 pools on Uniswap v3, Uniswap v4, PancakeSwap v3 and Aerodrome Slipstream. The study took 26 weekly snapshots across seven blockchains from Jan. 6 to June 30.

The analysis tracked about $1.84 billion in liquidity on average per week and found roughly $1.6 billion of that capital was underutilized at any given time. Dune reports that about 85% of concentrated liquidity across the measured pools was not actively earning fees during the study period.

Concentrated liquidity lets providers set a price band for their funds instead of spreading capital across every price. Dune split v3-family positions into three states: actively used, in range but untouched, and out of range. On average, 13.7% of capital was actively used, 56.9% was in range but never touched by the week’s trades, and 29.4% was out of range, meaning the market price lay outside the position’s band and the capital earned no fees.

The out-of-range share stayed mostly between 25% and 35% over the period, with an early-February spike to 41.4%. Dune checked position activity and found 43.8% of out-of-range positions had a deposit or withdrawal within 30 days, 19.5% were 30 to 90 days old, and 36.7%—about $200 million-had not been adjusted for more than 90 days.

Distance from the market price also mattered. About 35% of idle capital sat within 5% of the current price, roughly 43% sat more than 25% away, and about 17% was more than 100% away, a gap that would require the market to double or halve to return those positions to activity.

Smaller positions went idle more often but larger accounts held most of the idle dollars. Positions under $1,000 showed an idle rate near 53%, while positions above $1 million idled about 26% of the time. Positions over $1 million accounted for roughly 47% of all idle capital-about $260 million-and positions above $100,000 represented about 76% of idle dollars.

On-chain ownership tracing attributed most idle capital to wallets rather than contracts. On Ethereum, wallets controlled 91% of Uniswap v3 capital and accounted for about 94 cents of every idle dollar. On Base, contracts held roughly half of v3 total value locked, but wallets represented about 82% of the idle dollars there.

Protocol-level differences appeared in the data. Aerodrome’s staked capital had the lowest out-of-range share at about 16%. PancakeSwap’s staked capital ran higher on BNB Chain. Uniswap v4 showed a similar out-of-range rate to v3 at about 30.5%. Dune found that only about a tenth of v4 TVL sat behind any hook and that measured hooks executed swap logic, dynamic fees or accounting without routing idle tokens into external lending markets.

Dune applied an annualized fee rate of roughly 35% on in-range capital for Uniswap and PancakeSwap pools in the panel to estimate forgone fees. Using that rate, the report estimates idle capital cost liquidity providers about $150 million a year: approximately $116 million on Uniswap, $25 million on PancakeSwap and an estimated $6 million to $12 million on Aerodrome. The report notes this calculation treats each LP individually; total fees are driven by trading volume, so moving all idle capital into range would not increase the overall fee pool.

The study also measured volume fragmentation. Ether/stablecoin flows moved across about 170 venues weekly, with the largest venue averaging 28.8% of volume and never exceeding roughly 40%. Even stablecoin pools showed about 30% idle because liquidity is concentrated in narrow price ranges.

The report excluded Solana concentrated-liquidity venues and Curve, whose LP model does not use price ranges. Dune disclosed a survivorship tilt as the pool panel expanded from 559 to 776 pools and reconciled its reconstructed positions to on-chain balances to within about 97% by value.

Sergej Kunz, co-founder of 1inch, described the findings as “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.” Filippo Armani, research lead at Dune, observed that “Decentralized exchanges have grown into one of the deepest, most liquid markets in crypto. What our research shows is that it has reached this scale even though much of its liquidity is not yet fully at work.”