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Total Trading Fee

Liquidity Providers (LPs) earn trading fees from each swap. The total swap fee (f_s) consists of two parts: 
f_s = f_b + f_v
Where:
  • f_b: Base Fee (fixed)
  • f_v: Variable Fee (dynamic)
Fees are calculated per bin and distributed proportionally to LPs in each bin.

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Base Fee

The base fee is the minimum fee charged on every swap.

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Formula

f_b = B × s
Where:
  • B: Base factor (set by pool creator)
  • s: Bin step
A higher base fee earns more per volume but may reduce trade volume. Lower base fees give room for dynamic fees to optimize based on market volatility.

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Variable Fee (Dynamic)

The variable fee accounts for real-time market volatility.

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Formula (per bin k)

f_v(k) = A × (v_a(k) × s)²
Where:
  • A: Variable fee control parameter
  • s: Bin step
  • v_a(k): Volatility accumulator for bin k

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Variable Fee Characteristics

Variable fees are:
  • Higher for volatile markets
  • Calculated per bin crossed in large swaps
  • Distributed to LPs of each crossed bin

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Volatility Accumulator (v_a)

The volatility accumulator tracks real-time market activity.

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Formula

v_a(k) = v_r + |i_r - (activeID + k)|
Where:
  • v_r: Volatility reference (based on time since last swap)
  • i_r: Index reference
  • activeID: ID of the active bin before the swap
  • k: Relative bin index crossed during the swap
The more bins crossed or the more frequent the swaps, the higher the volatility and fee.

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Volatility Reference (v_r)

Volatility decays over time: 
v_r = {
  v_r,             if t < t_f
  R × v_a,         if t_f ≤ t < t_d
  0,               if t ≥ t_d
}
Where:
  • t: Time since last transaction
  • t_f: Filter period (e.g., 1s)
  • t_d: Decay period (e.g., 5s)
  • R: Decay multiplier

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Index Reference (i_r)

i_r = {
  i_r,           if t < t_f
  activeID,      if t ≥ t_f
}
i_r ensures fees cannot be gamed by frequent low-impact swaps.

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Fee Distribution Per Bin

Each bin crossed in a swap contributes to total fee: 
fee_k = swapAmount_k × (f_b + f_v(k))
Fees from each bin go to LPs providing liquidity in that bin.

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Example: Volatility in Action

Swap ActionTimeBins Crossedv_a (max)
#1Initial+3 bins (100 → 103)3
#24s later+5 bins (103 → 108)6.5
#30.3s later-2 bins (108 → 106)4.5
Volatility builds with activity and decays over time, making fees adaptive and manipulation-resistant.

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DLMM Protocol Fee

The protocol takes a portion of the dynamic fee (not just base).
Pool TypeProtocol Fee
Standard DLMM Pool5% of f_s
DLMM Launch Pools20% of f_s

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Key Benefits

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For Liquidity Providers

  • Higher returns during volatility - Dynamic fees increase when markets are active
  • Protection during quiet periods - Base fees ensure minimum earnings
  • Fair distribution - Fees go to bins that actually facilitate trades

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For Traders

  • Predictable base costs - Minimum fee is always known
  • Fair pricing during volatility - Higher fees during high-impact trades protect LP capital
  • Manipulation resistance - Time-based decay prevents fee gaming

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Understanding Fee Impact

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Low Volatility Scenarios

  • Fees remain close to base fee
  • Suitable for stable trading environments
  • Lower cost for routine swaps

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High Volatility Scenarios

  • Variable fees increase significantly
  • Compensates LPs for impermanent loss risk
  • Encourages liquidity provision during volatile periods
Dynamic fees are designed to balance trader costs with LP protection. During extreme volatility, fees may be substantially higher than base rates.