85% Of DeFi Liquidity Remains Underutilized, Leaving $1.6B In Capital Inefficiently Deployed
In Brief
Dune research finds 85% of DeFi concentrated liquidity is underutilized, highlighting efficiency challenges as on-chain markets expand.
A new study by on-chain analytics platform Dune, commissioned by the DeFi ecosystem 1inch, has found that a significant portion of concentrated liquidity on decentralized exchanges remains unused. The research indicates that approximately 85% of tracked liquidity, representing around $1.6 billion of the $1.84 billion analyzed, is underutilized at any given time. This includes an estimated $542 million that remains completely idle and outside active trading ranges during an average week.
The findings highlight a growing efficiency challenge for decentralized liquidity markets as tokenized assets and institutional capital increasingly move on-chain. While liquidity pools have been a foundation of DeFi growth, the report suggests that current concentrated liquidity models may struggle to support larger-scale adoption without improvements in capital utilization.
The analysis examined four concentrated-liquidity platforms — Uniswap v3 and v4, PancakeSwap v3, and Aerodrome Slipstream — across seven blockchain networks, including Ethereum, Base, Arbitrum, BNB Chain, Unichain, Polygon, and Optimism. Dune collected weekly data from January 6 to June 30, 2026, tracking approximately 200 leading pools by 30-day trading volume on each platform. The dataset covered between 559 and 776 pools, representing an average of $1.84 billion in liquidity. The study also compared several constant-product liquidity models, including Uniswap v2, PancakeSwap v2, and Aerodrome’s basic pools, as benchmarks.
“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 onchain, solving this needs to be priority number one,” said Sergej Kunz, 1inch Co-Founder in a written statement. “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,” he added.
Liquidity Efficiency Challenges Across DeFi Markets
The study found that idle liquidity — capital positioned outside the price range where it can generate fees — represented an average of 29.5% of concentrated liquidity throughout the 26-week research period. The proportion remained mostly between 25% and 35%, with a peak of nearly 41% in early February, equivalent to roughly $542 million in inactive capital.
According to the research, this inefficiency may result in significant lost revenue opportunities for liquidity providers. Based on estimated out-of-range liquidity levels and blended fee returns, the report calculated that inactive positions could represent approximately $150 million in unrealized annual fee earnings.
Further analysis identified several factors influencing liquidity utilization. Larger positions generally showed lower idle rates, with positions below $1,000 experiencing idle rates of around 54%, compared with approximately 26% for positions exceeding $1 million. However, larger positions still accounted for the majority of inactive capital, with positions above $1 million representing about 47% of idle liquidity and positions above $100,000 accounting for approximately 76%.
The research also found that price movement distance had a stronger impact on liquidity inactivity than market volatility. Liquidity positions were more likely to fall out of range when prices moved significantly away from their original levels, even during periods of relatively low volatility.
The analysis showed that no specific liquidity design completely avoided the issue. Idle liquidity levels varied across trading pairs and platforms, with Uniswap v4 showing similar inactive liquidity levels to Uniswap v3 at approximately 30%. Even stablecoin pools experienced similar challenges, as liquidity providers often set narrow price ranges that can be affected by minor price fluctuations.
The study further noted differences between individual and managed liquidity positions. On Uniswap v3, individual wallets accounted for approximately 82–94% of idle liquidity across analyzed chains, while professionally managed positions and market-making systems generally maintained liquidity within active ranges more consistently. Incentivized liquidity models, such as Aerodrome’s staked pools, reduced idle levels but did not eliminate the issue, with the lowest measured idle rate reaching around 16%.
“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,” said Dune Research Lead Filippo Armani in a written statement. “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 onchain visibility Dune has been building,” he added.
The report concludes that improving liquidity efficiency will become increasingly important as DeFi markets expand and attract more traditional financial assets. Better measurement, real-time monitoring, and new liquidity management approaches could help reduce inactive capital and improve the effectiveness of decentralized trading infrastructure.
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About The Author
Alisa, a dedicated journalist at the MPost, specializes in crypto, AI, investments, and the expansive realm of Web3. With a keen eye for emerging trends and technologies, she delivers comprehensive coverage to inform and engage readers in the ever-evolving landscape of digital finance.
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Alisa, a dedicated journalist at the MPost, specializes in crypto, AI, investments, and the expansive realm of Web3. With a keen eye for emerging trends and technologies, she delivers comprehensive coverage to inform and engage readers in the ever-evolving landscape of digital finance.
