Fee Structure

SwapMode offers liquidity providers a choice of four different fee tiers for each pair: 0.008%, 0.045%, 0.3%, and 1%. This range of options allows LPs to align their profit goals with the anticipated volatility of each trading pair. For pairs with higher expected volatility, like ETH/USDC, LPs can choose a higher fee tier to compensate for the increased risk. Conversely, for more stable, correlated pairs like USDT/USDC, LPs can opt for a lower fee tier, reflecting the reduced risk.

As of now, all trading pairs on SwapMode utilize a standard fee structure, with a fixed rate of 0.3% applied to all transactions.

While multiple fee tiers may fragment liquidity initially, it's expected that each pair will naturally gravitate towards a dominant fee tier, effectively becoming the primary market for that pair. For example, similar asset pairs might favor the 0.008% tier, whereas pairs like ETH/USDC could prefer the 0.3% tier, and exotic assets may align with the 1% tier. Governance can introduce additional tiers if necessary.

  • Trading Fees 0.008%: Ideal for stable pairs like USDT/USDC, where low impermanent loss is expected, attracting both traders and LPs due to minimal fee and price stability.

  • Trading Fees 0.045%: Suited for assets with moderate volatility or impermanent loss. This tier balances the need for fee revenue with the desire to attract liquidity, catering to assets with a higher risk but reasonable trading volume.

  • Trading Fees 0.3%: Designed for exotic or less liquid assets, this tier compensates LPs with higher fees due to the lower trading frequency, ensuring their commitment despite the risk.

  • Trading Fees 1%: The highest tier, targeting rarely traded assets with significant impermanent loss. It offers substantial incentives for LPs to provide liquidity, balancing the high risk involved.

It's important to note that these fee tiers are not exclusive. Each token pair can have a liquidity pool in every fee tier, but it's likely that pairs will gravitate towards the tier that best aligns the interests of LPs and traders.

The primary goal of these varied fee tiers is to optimize the balance between low fees for traders and attractive liquidity incentives for LPs, ensuring a competitive and efficient trading environment for all market participants.

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