Dynamic Fees

• Volatility-Based Adjustment:

  • ALMM uses a fee scheduler that monitors the price volatility of the token pair, typically measured over a short time window (e.g., recent price movements or oracle data).

  • Volatility is assessed using metrics like price range fluctuations or standard deviation of price changes within the pool.

  • When volatility is high, fees increase to compensate LPs for higher IL risk.

  • When volatility is low, fees decrease to attract more trading volume.

• Fee Application:

  • Fees are charged on each trade within the active bin, where trades occur at a fixed price with zero slippage.

  • Fees are auto-compounded into the bin, increasing the LP’s position value without requiring manual reinvestment.

  • Base fees (e.g., 0.3%) are fixed, but dynamic fees scale with volatility—say, 0.5% to 1.5%—measured by bin crossings or trade frequency.

    • Example: During a 10% SUI price surge, fees might spike to 1%, offsetting impermanent loss (IL) and boosting LP revenue.

• Fee Range:

  • The fee range is set by the pool creator and can vary based on the token pair and market conditions.

  • Typical ranges: 0.1% to 1%, with stable pairs (e.g., USDC/USDT) starting at lower fees (e.g., 0.1%) and volatile pairs (e.g., SUI/USDC) at higher fees (e.g., 0.3% or more).

  • The fee scheduler adjusts within this range dynamically.