Fee Structure
Skeleton offers liquidity providers six distinct fee tiers per pair, namely 0.01%, 0.05%, 0.25%, 1%, 5%, and 10%. This flexibility allows LPs to align their profit margins with the anticipated volatility of each pair, taking on higher risks for non-correlated pairs like ETH/USDC and minimal risks for correlated pairs like USDT/USDC.
Liquidity Provider
67%
66%
68%
68%
68%
68%
Protocol
33%
34%
32%
32%
32%
32%
Although having multiple fee tiers may result in some liquidity fragmentation, most pairs will gravitate towards a specific fee tier, which will emerge as the primary market. For example, stablecoin pairs like USDT/USDC are expected to cluster around the 0.01% fee tier. In comparison, volatile pairs like ETH/USDC may prefer the 0.25% fee, while highly volatile pairs like PEPE/WETH could pay up to 10%.
If necessary, partners or Skeleton governance can also introduce additional fee tiers. If you are a protocol and would like to propose a new fee tier, please contact us here.
Trading Fees 0.01%: For stable pairs such as USDT/USDC, where price stability is expected and impermanent loss is minimal, traders and liquidity providers opt for the lowest fee tier.
Trading Fees 0.5%: For assets with higher impermanent loss or less robust liquidity, traders and LPs may agree on a higher fee tier to provide more fee revenue and incentives for LPs to provide liquidity, thereby mitigating impermanent loss. This fee tier is intended for volatile assets relatively well-traded or expected to have a higher impermanent loss.
Trading Fees 0.25%: This fee tier is for more exotic or less frequently traded assets, where the higher fee provides traders access to these assets while allowing LPs to earn sufficient fee revenue.
Trading Fees 1% or higher: These fee tiers are intended for assets traded less frequently or with an even higher impermanent loss, especially meme tokens. This fee tier incentivizes LPs to provide liquidity and overcome impermanent loss while enabling traders to access these assets. Skeleton uses this fee ladder to propel the growth of Meme protocols on Fantom.
It is important to note that these fee tiers are not mutually exclusive, as each token pair can have a liquidity pool for each fee tier. However, asset pairs tend to gravitate toward the fee tier, where incentives for LPs and traders align more closely.
In summary, the different fee tiers exist to strike a balance between traders paying the lowest fee tier while still incentivizing the highest possible liquidity from LPs.
Last updated