Technically speaking, capital efficiency is the ratio of how much a company is spending on growing their revenue and how much they are getting in return. For example, if a company is earning one dollar for every dollar spent on growth, it has a 1:1 ratio of capital efficiency.

DeFi is all about increasing the capital efficiency of investors supporting a blockchain by buying its token—being capital efficient means you need to grow profitably without over investing in improving revenue to identify customers and earn more income from customers in return.

Capital efficiency requires the investor to establish goals and develop an action plan.  They have to assess how to make their money work in terms of bringing better returns.  They have to evaluate how they will get paid—the payment intervals. Investments are made with short-term returns and long-term returns in mind.  And, ongoing strategy is essential to identify how to make more profits by rethinking investment

methods.

There is no hard rule when it comes to DeFi, but the purpose is to make a decent return for the capital resources invested.

Traditional capital investment suggests The ROIC formula, the net operating profit after tax (NOPTAT) divided by invested capital. As a result, companies with a steady or improving return on capital are unlikely to put significant amounts of new capital to work.

It is not hard to make money with DeFi.  The first step is to identify the best price you can get for your investment from the most popular DEXes. It also makes sense to split your investment across multiple DEXes.

Take a list of all the Defi lending Protocols and compare the interest rates between different protocols. Next, decide the amount you want to lend. Then, invest the amount in the lending protocol, which provides the best lending rate. After you earn your interest, you unlock your interest, and you decide to stay invested in the same pool or shift to other lending pools, depending upon the kind of profit you are willing to make.

Uniswap v3 has introduced concentrated liquidity and multiple fee tiers.  Concentrated liquidity provides the LPs with granular control over the price ranges to which their capital can be allocated. Individual lending positions are aggregated together into a single pool, thus creating one combined curve for users to trade against.

There are multiple fee tiers, which permit LPs to be compensated for taking on varying degrees of risk.

Thus, Uniswap v3 is the most flexible and efficient AMM ever designed.

The LPs in Uniswap V3 can provide liquidity contributing to up to 4000x capital efficiency when compared to Uniswap v2, thus making it possible for users to earn higher returns on their capital.

Capital efficiency leads to low-slippage trade execution, which can surpass centralized exchanges and stablecoin-focused AMMs.

Investors in DeFi can use LPs to increase their exposure to preferred assets and bring down their downside risk.

Also, the LPs will be able to sell one asset for another by adding liquidity to a price range entirely above or below the market price, thus, approximating a fee-earning limit order which will be able to execute along a smooth curve.