Here's a better explanation from Ian (the president of NLS):
The gel's guaranteed analysis is for the pre-mixed powder. However, this does not mean that the final gel will have 1/3 the nutrients (for example 18% protein). The gelling process means that the proportion of water/food in the final gel isn't that same mixing proportion due to evaporation, as well as expansion of the ingredients to encompass more volume. If you notice when mixing, the final gel mix is quite a bit larger than the water and powder alone -- meaning for ever ounce of food, more than 1/3 of it is food mix.
Likewise, because the gel has water and does not dissolve as it soaks, nor leaches into the water, it compensates for the water in the mix. Pellets take on water and swell as they are exposed in water, meaning that the volume increases per pellet while nutrition leaches out. New Life Spectrum pellets are excellent at retaining their integrity and reduce leaching, but this does have a small effect. The pellets also swell in the stomach, limiting the fish's intake The gel is swollen to its final volume pre-intake.
The end result of this is that at 3:1 ratio, the Gel has approximately the same nutrition density as the pellets per serving. Once you get into 4:1 ratio, in which the powder will retain its integrity, the nutrition density drops below our standard formula -- which is why it is not recommended.
The ingredients in the powder are similar to the pellets, although the proportions are not identical, and we have added algaenate to substitute for much of the wheat flour, since we didn't have to form pellets.