Fees & Parameters
Max fees for both short-term and long-term fees are capped at 1%.
Unlike traditional DEXs where there's a single fee and swap interface, TWAMMs have a dual swap interface. Therefore LPs get fees from both short-term (toxic) and long-term swaps (non-toxic).
// Example LP fees generated in a simple LT swap
LT Swap for $10M ETH -> USDC in 100 intervals
Pool Liquidity: $100,000
Short-Term Swap Fee: 0.05%
Long-Term Swap Fee: 0.1%
Trade Duration: 30k blocks = 100 intervals * 300 blocks per interval
Average Trade Size Per Block: BUY $333.333 USDC per block
// Short-Term Swap Fees (Hypothetical)
1 short-term swap per 30 blocks
SELL $10000 USDC for ETH
ST Swap Fee: $5 = $10k * 0.05%
Number of ST Swaps: 1000 = 30,000 / 30
Total ST Swap Fees: $5,000 = $5 * 1000
// Long-Term Swap Fees
LT Swap Fee: $10,000 = $10M * 0.1%
// Total LP Fees
$15,000 = $10,000 (From Trader) + $5,000 (From Arbitrageur)
Balancer can charge a fee on pools, especially ones incentivized by veGauges, up to 50% of the swap fees. These fees are flexible and will be applied pool-by-pool depending on volume, fees, and other factors. See more here:
Certain partner arbitrageurs will get a lower short-term swap fee to incentivize frequent arbitrage. In return, the arbitrageurs will return some of the MEV extracted back to the protocol which will be donated back to the pool LPs pro rata. See more here:
Getting the correct fee schedule and setting up the correct incentive structure to benefit all three parties (traders, arbs, LPs) is an extremely difficult problem. We have made our protocol extremely flexible to allow in-flight changes to these fees based on market conditions. There will be changes to the fee schedule to ensure all parties are optimally rewarded.
If you're a researcher or a protocol working on a solution to optimize such fees, please reach out. See the problem statement here: