DAMM v2 LPs earn a swap fee from traders when they perform a swap. The fees can be collected in two ways:
  • Quote only
  • Quote + Base
DAMM v2 fees are not compounded into the pool liquidity.

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Total Trading Fee

The total swap fee (fsf_s) will have two components:
  1. A base fee (fbf_b)
  2. A variable fee (fvf_v)
The total swap fee is calculated as: fs=fb+fvf_s = f_b + f_v The variable fee (fvf_v) is a function of real-time price volatility. The fee rate will be applied to the swap amount in each liquidity bin and distributed proportionally to the LPs in that bin. LPs can claim these fees whenever they are available.

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Base Fee

The base fee of a pool can be configured by the pool creator in the following ways:
  • Fixed Base Fee: A fixed fee that is applied to the swap amount.
  • Fee Scheduler: A fee decay mechanism that decays the fee from a high starting fee to an ending fixed base fee over a period of time. The ending fee will be the fixed base fee of the pool after the fee scheduler is finished.
  • Rate Limiter: Coming Soon
You can only choose one of the three options for the base fee.

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Fixed Base Fee

Fixed base fee is a fixed fee that is applied to the swap amount. The fee can range from 0.01% to 50%. It is specified in the config key used for the pool creation.

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Fee Scheduler

Fee scheduler is a fee decay mechanism that decays the fee from a high starting fee to an ending base fee over time. The fee math calculation for the scheduler can be found here.

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Dynamic Fee (Variable Fee)

The variable fee is the core of the dynamic fee mechanism. It increases with market volatility. fv=(va×s)2×C/100000000000f_v = (v_a \times s)^2 \times C / 100000000000 where:
  • Volatility Accumulator (vav_a): A measure of recent price volatility
  • Bin Step (ss): A parameter that defines the price granularity for measuring volatility
  • Variable Fee Control (CC): A parameter to control the magnitude of the variable fee

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Volatility Accumulator

The Volatility Accumulator tracks price movements. It’s updated with every swap. va=min⁡(vmax,vr+Δp×10000)v_a = \min(v_{max}, v_r + \Delta p \times 10000) where:
  • Max Volatility Accumulator (vmaxv_{max}): A cap on the volatility measure to prevent fees from becoming excessively high
  • Volatility Reference (vrv_r): A decayed value of the volatility accumulator
  • Price Change (Δp\Delta p): The price change since the last reference update, measured in “bins”

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Price Change

The price change is calculated based on the change in the square root of the price. Δp=(pc/pr−1)/s×2\Delta p = (\sqrt{p_c / p_r} - 1) / s \times 2 where pcp_c is current price and prp_r is reference price.

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Volatility Reference

To ensure that the dynamic fee reflects recent volatility, the Volatility Reference decays over time. vr=va×R/10000v_r = v_a \times R / 10000 The decay mechanism is based on the time elapsed since the last significant trade:
  • If elapsed time < filter period: No change. This ignores very high-frequency trades.
  • If filter period ≤ elapsed time < decay period: The volatility reference is reduced.
  • If elapsed time ≥ decay period: The volatility reference is reset to 0. This happens if there are no significant trades for an extended period.

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Max Dynamic Fee on DAMM v2

Currently, the max dynamic fee on DAMM v2 is less than or equals to 20% of the Base Fee. Example:
  • Base Fee = 1%
  • Dynamic Fee = 0.2%
  • Total Trading/LP Fee = 1.2%