Dynamic Fees

Dynamic Fee System for DLMM Pools

The Dynamic Fee System adjusts fees during volatility in real-time to compensate for possible impairment loss. Each DLMM liquidity pool has its own fee settings, which are calculated as follows: Minimum Base Fee + Variable Dynamic Fee (depending on volatility)

Minimum Base Fee

You can see the base fee of each pool on its pools page. The exact percentage of the base fee is set by the pool creator when opening the pool.

Variable Dynamic Fee

The dynamic fee on the other hand depends on the volatility of the market. It will be affected by the frequency of the swaps, and how much price moves across bins in a given time period. Dynamic fees greatly increase the profitability of the liquidity. As dynamic fees on SectorOne are built in to the core protocol, they are not dependent on external oracles making sure they activate in an instant without any lag.

All DLMM fees are calculated and distributed per bin, to allow a fair distribution of the fee to the liquidity providers of the bin crossed. Dynamic fees are calculated iteratively as each bin is crossed (if the swap/trade is large enough). In other words, if a large swap/trade crosses n bins, then the total swap fee is calculated per bin k, where k is the difference in bin IDs from the initial bin where the swap originated and the current bin in which it is being calculated.