Fee Mechanics

Understanding how dynamic fees work on HX Finance.

Dynamic Fee System

Unlike traditional AMMs with fixed fee tiers, HX Finance implements dynamic fees that automatically adjust to market conditions.

How Dynamic Fees Work

1. Base Fee Level

   • Most pools start with a base fee around 0.05%
   • This represents the minimum fee during stable conditions

2. Automatic Adjustments

   • Fees increase during high volatility periods
   • Fees decrease during stable market conditions
   • No manual intervention required

3. Optimization Logic

   • Balances LP returns with trading volume
   • Higher fees protect LPs during risky periods
   • Lower fees attract volume during calm markets

Benefits for Different Users

For Traders

• Lower costs during stable markets
• Fair pricing that reflects actual market risk
• No guessing which fee tier to use
• Transparent fee display before trades

For Liquidity Providers

• Higher earnings during volatile periods
• Automatic protection from adverse selection
• Optimal fee capture without manual management
• Competitive advantage over fixed-fee AMMs

For the Protocol

• Efficient markets with self-balancing incentives
• Higher total volume from optimal fee levels
• Better LP retention through fair compensation

Fee Distribution

Where Fees Go

Trading Fee
    ├── 87% to Liquidity Providers
    │   └── Distributed pro-rata based on:
    │        - Share of liquidity in range
    │        - Time price spent in range
    ├── 8% to HX Finance Protocol
    └── 5% to Infrastructure Provider

Protocol Fee Usage

The 8% protocol fee supports:

• Platform development
• Security audits
• Community incentives
• Operational costs

Fee Collection

• Fees accumulate in the position
• Can be collected anytime
• No automatic distribution
• Gas-efficient batch collection

Comparing Fee Models

Real-World Examples

Stable Market Scenario

USDE/USDC pair during calm period:
- Traditional AMM: 0.05% fixed
- HX Finance: 0.04% (dynamically lowered)
- Benefit: More volume, competitive rates

Volatile Market Scenario

WHYPE/USDE during price discovery:
- Traditional AMM: 0.3% fixed
- HX Finance: 0.45% (dynamically increased)
- Benefit: LPs protected from impermanent loss

Multi-Market Arbitrage

Cross-DEX arbitrage opportunity:
- Other DEX: 0.3% fixed fee
- HX Finance: 0.05% current fee
- Result: Arbitrageurs choose HX, increasing volume

Fee Monitoring

For Traders

1. Check current fee before swapping
2. Displayed in swap interface
3. Included in price impact calculation
4. Historical fee data available

For LPs

1. Monitor fee trends in analytics
2. Higher fees = higher APY
3. Position in volatile pools for maximum fees
4. Track cumulative fee earnings

Technical Implementation

Fee Calculation

// Simplified logic
currentFee = baseFee * volatilityMultiplier
 
where:
- baseFee = pool's minimum fee
- volatilityMultiplier = calculated from:
  - Recent price movements
  - Trading volume
  - Time-weighted volatility

Fee Range

• Dynamic fees adjust automatically
• Starting from base fee of 0.05%
• Increases during high volatility
• Exact bounds depend on market conditions

Frequently Asked Questions

Q: Can I predict future fees? A: Fees adjust based on real-time market conditions and volatility. While exact fees can't be predicted, highly correlated pairs tend to have more stable fees than volatile pairs.

Q: Do all pools have dynamic fees? A: Yes, all HX Finance pools use the dynamic fee mechanism.

Q: How often do fees change? A: Fees can adjust with each block based on market conditions, but significant changes typically occur over minutes/hours, not seconds.

Q: Can fees be manipulated? A: The algorithm is designed to resist manipulation, using time-weighted metrics and multiple data points.

Best Practices

For Optimal Trading

• Trade during stable periods for lowest fees
• Check fee trends in analytics
• Consider fee impact for large trades
• Use limit orders during high-fee periods

For Maximum LP Returns

• Provide liquidity to volatile pairs
• Monitor fee APY trends
• Compound fee earnings regularly
• Position ranges to capture fee spikes

Next Steps

• Become a Liquidity Provider
• View Current Pool Fees (opens in a new tab)
• Read Technical Docs