Difference between Liquidity in Uniswap V2 und V3 when deploying a contract

Question

When I deploy a contract and add liquidity to my V2 pool on Uniswap, I usually add amount of TokenA and an amount of ETH which then determines the price (amount of tokens / amount of ETH). When people trade, this liquidity is being provided across the whole price range.

As of Uniswap V3 and the concentrated liquidity model, when I deploy a contract do I have to determine a price range for my liquidity? What if the price exceeds my liquidity range, are people then not able to trade anymore, as my liquidity is "inactive" in that price range? Do I then have to add more liquidity for the new price range?

Answer 1

Yes, you have to add liquidity to a specific range. See the documentation here.

The range can be very wide, effectively simulating price changes from almost zero to almost infinity. In this way, V2 liquidity can be simulated.

If the liquidity is more narrow, trading will be impossible if the price reaches a region where there's no more liquidity. In such a region the price can be easily manipulated, and effectively can go to zero or to infinity if someone tries to execute a swap transaction while the pool is in this state.