About $1.6 billion in liquidity deposited across major decentralized exchanges (DEXs) is not being used to its full potential, according to new research, leaving liquidity providers missing out on roughly $150 million in annual fees. The finding highlights a structural inefficiency in how decentralized finance (DeFi) operates, even as the sector has grown into one of the deepest and most liquid markets in crypto.

What Is Idle Liquidity and Why Does It Matter?

Concentrated liquidity pools, a feature of modern DEXs like Uniswap, allow liquidity providers to deposit assets within a specific price range. When traders buy and sell within that range, the providers earn a share of the trading fees. However, if the market price moves outside the chosen range, the position stops earning fees until the provider adjusts it or the price returns.

The research, conducted by analytics firm Dune and commissioned by decentralized exchange aggregator 1inch, tracked liquidity across Uniswap v3 and v4, PancakeSwap v3, and Aerodrome Slipstream on seven blockchain networks from January through June 2026. The findings are striking: roughly $542 million, or 29.5% of tracked liquidity, sat completely out of range in an average week, earning zero fees and providing no market depth.

Who Is Losing the Most Money?

The research revealed a surprising pattern in which liquidity providers are most affected by idle capital. While smaller positions below $1,000 had a higher percentage of their liquidity out of range, 54% compared with 26% for positions above $1 million, the largest positions still held the majority of idle capital in absolute terms. Positions worth more than $1 million accounted for roughly $260 million, or 47% of all idle capital.

Individual wallet holders, rather than automated contract-managed positions, were responsible for most of the idle liquidity. On Uniswap v3, individual wallets accounted for between 82% and 94% of attributed idle capital depending on the blockchain, suggesting that manually managed positions are more likely to go unattended and fall out of range.

"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," said Filippo Armani, research lead at Dune.

Filippo Armani, Research Lead at Dune

What Causes Liquidity to Go Out of Range?

The research linked idle liquidity more closely to directional price movements than to volatility. A steady price move in one direction is more likely to strand capital than a volatile week that ends near where it began. For example, when Bitcoin hovered near $90,000 in January 2026 before crashing to around $60,000, the steady directional move pushed many positions out of their intended ranges.

The out-of-range share of total liquidity stayed mostly between 25% and 35% throughout the study period, rising to nearly 41% in early February when markets experienced significant directional moves.

How to Manage Liquidity Provider Risk

• Active Monitoring: Liquidity providers must regularly check whether their positions remain within their chosen price ranges and adjust them as market conditions change to continue earning fees.
• Balance Automation and Control: Contract-managed positions stay within consistent ranges more reliably than manually managed positions, but they require initial setup and may have higher fees or less flexibility.
• Account for Transaction Costs: Keeping positions active involves transaction costs and execution risks that can offset some of the fees earned, so providers should weigh the cost of rebalancing against potential fee income.
• Consider Position Size: Larger positions tend to remain in range more consistently, suggesting that consolidating liquidity into fewer, larger positions may reduce the need for frequent adjustments.

Why Is This Problem Growing?

1inch argues that idle liquidity will become increasingly costly as DeFi markets grow and more capital enters the ecosystem. As more users and traditional assets move onchain through retail platforms and as financial firms expand their work on tokenized funds and blockchain-based settlement, thinner liquidity and stranded capital will represent a larger drag on the entire system.

The $150 million annual fee estimate is based on a blended in-range fee annual percentage rate (APR) of about 35%, though the research notes this figure is not guaranteed recoverable income. Keeping positions active can add transaction costs, execution risk, and exposure to unfavorable price movements that may offset the potential fee gains.

The timing of this research is notable. 1inch commissioned the study ahead of its planned launch of Aqua, a new liquidity protocol designed to address inefficiencies in how liquidity is deployed across decentralized exchanges. While Dune developed the methodology and reached its conclusions independently, the findings underscore a real pain point for DeFi participants seeking to maximize returns on their capital.