CLMM vs AMM: Which one should you choose in Solana? (DeFi)

Don't know which is the best protocol to create your liquidity pool? Knowing the differences between CLMM vs AMM is important to make the best decision.  

Both models are ways of creating liquidity pools in decentralized exchanges (DEX), but they work differently.

In this article we will clearly explain what each one is, their fundamental differences, and provide a practical guide to choose the best protocol for your project.

What is the AMM meaning?

An AMM (Automated Market Maker) is a decentralized protocol that allows the creation of an automated market without a traditional order book. Instead of matching buyers and sellers, trades are made against liquidity pools composed of two tokens.

Each pool typically follows a constant product formula (x*y=k): the product of the quantities of the two tokens remains constant, determining the exchange price between them. This ensures that there is always a price at which to transact, although the quantity received will vary according to the equilibrium of the pool.

In traditional AMMs, the liquidity provided by suppliers is distributed evenly across a very wide range of prices—in theory, from 0 to infinity. This means that, regardless of token current price, the pool always retains some liquidity even for prices that are far off.

The advantage is that any trade can be executed at any time (there is always liquidity to buy or sell, even at an impacted price); the disadvantage is that much of that liquidity is "idle" or underutilized when the actual price is in a narrow range. In other words, the traditional model sacrifices capital efficiency for simplicity and full price range hedging.

What is CLMM?

CLMMs are the evolution of AMMs, introducing the concept of concentrated liquidity. A Concentrated Liquidity Market Maker allows LPs to concentrate their capital in specific price ranges, rather than spreading it evenly across the price curve.

In other words, the liquidity provider can choose a range (for example, from $0.05 to $0.10 for a token , or from $0.99 to $1.01 for a stablecoin) and provide liquidity only within that range.

As long as the token price token within that range, trades will have much more liquidity available (because all of the LP’s capital is “pooled” there), resulting in lower slippage and better prices for traders. Conversely, if the price moves outside the chosen range, that LP’s liquidity becomes inactive (it no longer participates in swaps) until the price returns to the range, at which point it would become active again.

Technically, a CLMM works by creating multiple "mini-pools" within discrete price bands (often called ticks). Within each tick, the formula remains x*y=k (maintaining constant product logic), but on a global scale the pool is not continuous across the entire spectrum, but segmented by the ranges contributed.

You may also be interested in this article: How to Set Tick Size and Minimum Order Size

The main advantage is greater capital efficiency. By focusing funds where they are needed most (near the current price or range where you anticipate volume), fee returns increase and less capital is used to achieve the same market depth as a traditional AMM.

CLMM vs AMM: Key differences

Below, we summarize the main differences between a traditional AMA and a CLMM in Solana, comparing their characteristics:

Appearance	Traditional AMA	CLMM (Concentrated liquidity)
Liquidity distribution	It is spread across the entire price range; there is always some liquidity.	It is placed only in a specific range chosen by the LP.
Capital efficiency	Low: a lot of capital remains idle.	High: all capital "works" where it is used.
Slippage	Shallower depth, more slippage in large trades.	Great depth within the active range, minimal slippage there.
Commissions for LP	Spread over all reservoirs; average yield.	Only within the active range; potentially higher yield.
Impermanent loss	Moderate but constant.	May be higher if the price goes out of range; compensable with more fees.
Management required	Practically passive ("set-and-forget").	Active: ranges must be moved when the price changes.
Ease of use	Very easy to launch and for novice LPs.	More complex (choosing ranges, understanding ticks, position NFTs).
Ideal cases	Fast releases, volatile memecoins, wide accessibility.	Stablecoins, tokens with predictable price, limited capital seeking efficiency.

What is the best protocol for your case?

Now that you know the differences between AMM and CLMM, the key question is: Which one is better suited for your token?

Here we offer a practical two-step guide: first, analyze the type of token you plan to launch; and second, define the primary objective for that token.

1. Evaluate the type of token similar use cases on Solana

Memecoins: Many creators of this type of token opt for traditional AMMs on popular DEXs because it’s simple and ensures their token appears immediately on aggregators like Jupiter. Concentrated liquidity is uncommon for memecoins, as it requires more management and the price can skyrocket or crash beyond any expected range.

Utility tokens: These are tokens associated with platforms, games, DAOs, or other projects that offer functionality beyond speculation. These projects typically want a stable and deep market for their token, but they also value security and predictability. In practice, most utility tokens on Solana started out using traditional AMMs. This is because launching a traditional pool is simpler, and the DeFi community is already familiar with their use.

Stablecoins: in this case the priority is to minimize price variation and allow large swaps without deviating from the reference value. Traditionally, this has been achieved by special stablecurve AMMs (such as Saber or Mercurial in Solana) that use a different formula than x*y=k, optimized to keep the price around 1. However, CLMMs are also very effective for stablecoins: an LP can concentrate its range from $0.99 to $1.01, for example, creating huge depth in that very narrow range.

2. Define the primary goal of your token terms of liquidity

Viral growth and rapid adoption: If your goal is to distribute the token widely token possible (e.g., a token or marketing token where you want many people to hold and trade it), the priority is ease of access. In this case, an AMM on a popular platform is the way to go. It ensures that your token on aggregators and explorers (Jupiter, Solscan, etc.) right from the start.

Price stability: Perhaps your token a purpose where a stable or predictable price is desirable (for example, it is used as a medium of exchange in a dApp, or it is backed by assets). In that case, minimizing volatility and the spread is essential. Here, a CLMM is advantageous because it provides concentrated liquidity near the target price.

You might also be interested in this article: How much liquidity should I add to my token Solana?

How to create a liquidity pool with CLMM and AMM in Solana?

The easiest and fastest options to provide liquidity or create a liquidity pool, whether CLMM or AMM, is to use automated software tools that make the process easy and require no coding knowledge.

In the case of CLMM we recommend you to use the following platforms Orca o Raydiumbecause they are the DEX with the highest current trading volume in Solana where concentrated liquidity pools can be launched. 

On the AMM side, you can learn how to use Smithii Create Liquidity Pool tool, which will allow you to provide liquidity for your token just a few clicks.   

Frequently Asked Questions about CLMM vs AMM

At Smithii we specialize in creating DeFi tools for developers and token creators on multiple blockchain networks, especially Solana. We have helped launch thousands of tokens and liquidity pools, so we share some answers we often get from users about CLMM vs AMM:

What is Raydium CLMM?

CLMM in Raydium refers to the type of AMM offered by this DEX that allows you to create concentrated liquidity pools. It is currently Raydium s recommended method for creating liquidity pools, which is why you will see it as the first available option next to a label that says "Suggested". 

What is CLMM on DexScreener?

When you see “CLMM” in DexScreener that a concentrated liquidity pool has been provided for that cryptocurrency through the Concentrated Liquidity Market Maker protocol. You’ll see this indicator as a label next to the name of token question. Additionally, you may see “CPMM,” “DYN,” “DYN2,” “DLMM,” and others depending on the model used. If no label appears, it means the token uses the traditional AMM protocol.

Conclusion

If you're considering providing liquidity for your token, it's important to understand the difference between CLMM and AMM, as this can impact your opportunities for yield, management, and adoption. Remember that at Smithii a tool to launch a liquidity pool using the AMM protocol.