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💧 Liquidity Provider Fees

💸 Fees​

SwapX employs a transparent and structured fee mechanism. The fee structure currently focuses on rewarding Liquidity Providers (LPs).

💧 Liquidity Provider Fees​

A flat 0.3% fee is charged on every token exchange (swap) transaction.

  • Fee Distribution: The entire 0.3% fee is immediately added to the liquidity reserve, and is then distributed proportionally to all liquidity providers based on their contribution to the pool.

  • Mechanism: The immediate deposit of the exchange fee into the liquidity reserve increases the value of the outstanding liquidity tokens. This serves as a payment to all liquidity providers, proportional to their share in the pool.

  • Collection: The fee is collected by burning liquidity tokens to eliminate their proportional share in the base reserve. [Note: This is a direct quote from the original source. The standard AMM model usually does not involve burning LP tokens for fee collection.]

  • Invariant Impact: The addition of the fee to the liquidity pool causes the invariant ($$1$) to increment at the end of each transaction.

    💡 Invariant: In a single transaction, the invariant represents the $$1`$ at the end of the previous transaction.

⚙️ Protocol Fees​

Currently, there are no protocol fees charged on transactions.

  • Future Implementation: A 0.05% fee per transaction within the protocol scope may be implemented in the future.
    • This potential 0.05% protocol fee is equivalent to $`$1$ (16.6%) of the standard 0.30% Liquidity Provider Fee.
  • Fee Recipient: If the designated feeTo address is not the zero address (address(0) or 0x00...00), then the protocol fee is considered valid and the feeTo address will be the recipient.
  • Impact: The implementation of the protocol fee does not affect the 0.3% fee paid by traders, but it does affect the amount received by liquidity providers (as a portion of the 0.3% would be diverted).