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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 Time 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.
  • Fee Market Cap Scheduler: A fee decay mechanism that decays the fee based on price movement rather than time.
  • Rate Limiter: A fee slope mechanism that increases the fee based on trade size.
You can only choose one of the four 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 Time Scheduler

Fee Time 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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Fee Market Cap Scheduler

Fee Market Cap Scheduler is a fee decay mechanism that decays the fee based on price movement (market cap growth) rather than time. Fees reduce progressively as the token price increases from its starting point. The fee math calculation for the scheduler can be found here.

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Rate Limiter

Rate Limiter is a fee slope mechanism that starts at a fixed base fee and increases the fee based on trade size. This helps deter large trades from manipulating the market during launch. The fee math calculation for the rate limiter 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

If you set the useDynamicFee to true in the config key when you deploy via DAMM v2 Launch Pool, the max dynamic fee on DAMM v2 will be less than or equals to 20% of the Base Fee. You can also choose to configure the dynamic fee manually based on the math formula above. Example:
  • Base Fee = 1%
  • Dynamic Fee = 0.2%
  • Total Trading/LP Fee = 1.2%