A new report from Dune says a large share of liquidity supplied by users to decentralized exchanges, or DEXs, is not being used to execute trades, leaving substantial capital idle even after the adoption of concentrated liquidity mechanisms intended to make markets more efficient.

According to the findings, nearly 90% of concentrated liquidity in decentralized finance, or DeFi, remains underutilized. The figure points to a gap between the intended purpose of concentrated liquidity and how much of that capital is actually supporting trading activity across DeFi venues.

Concentrated liquidity, a feature popularized by Uniswap v3 after its launch in May 2021, allows liquidity providers to allocate capital within selected price ranges rather than across an entire price curve. In theory, that design can improve capital efficiency by placing funds closer to the prices where trading is most likely to occur, earning providers trading fees when their capital is tapped. The Dune report indicates that, in practice, most of this liquidity is not being used for trade execution, meaning much of the capital committed by liquidity providers is generating little or no fee revenue.

Unlike earlier automated market maker models that distributed liquidity uniformly and required less ongoing attention, concentrated liquidity demands more active management. As market prices move, positions can fall outside their selected ranges and stop earning fees entirely, requiring providers to reposition capital — a task that adds operational complexity and cost, particularly for retail participants who may lack automated tools.

The reported inefficiency could discourage potential investors and slow DeFi's development as an alternative to traditional finance. As more transactions move to DeFi networks, underused concentrated liquidity could become a more important operational issue, potentially limiting the effectiveness of decentralized trading platforms.

The report was released as companies such as Riot Blockchain Inc. (NASDAQ: RIOT) continue to support wider public exposure to digital currencies. Its findings point to the need for improved mechanisms that more closely align liquidity provision with actual trading demand.

The implications for the broader cryptocurrency ecosystem are significant. If DeFi protocols are unable to efficiently deploy the capital locked in liquidity pools, the sector's stated aim of democratizing access to financial services could be weakened. The report highlights the difference between theoretical efficiency and real-world outcomes, a gap that may lead developers to reconsider how liquidity incentives are designed.

CryptoCurrencyWire (CCW), a communications platform focused on the blockchain and cryptocurrency sector, noted the importance of this type of analysis for market participants. CCW is part of the Dynamic Brand Portfolio @IBN, which provides access to wire solutions and editorial syndication across thousands of outlets. The platform says it aims to reduce information overload while helping clients build recognition and brand awareness.

As DeFi continues to mature, addressing capital inefficiency remains an important issue for both institutional and retail participation. The Dune report frames the current level of unused concentrated liquidity as a challenge for protocol developers and liquidity providers seeking to improve strategies and make deployed capital more productive. Without improvements, the industry may leave significant value unused.