Automated Market Makers (AMMs) such as Uniswap incentivize users to provide liquidity by rewarding them with the fees generated when other users trade. In a nutshell, providing liquidity allows you to earn more crypto in a sustainable manner.
With Uniswap v2, liquidity is distributed in an infinite range. While this allows for a simple user experience, it is very capital inefficient as a majority of liquidity is never put to use.
Uniswap v3 introduced concentrated liquidity, giving liquidity providers granular control over the price range their capital is allocated to. This allows for up to 4000x capital efficiency (using an extremely narrow range) relative to Uniswap v2, enabling LPs to earn higher returns and paving the way for low-slippage trading. Many more DEXs have since introduced concentrated liquidity too.
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