Pool Fees

Pool fees are charges paid by traders to liquidity providers when executing swaps within a decentralized exchange liquidity pool. These fees compensate liquidity providers for the risk of impermanent loss and the opportunity cost of locking their capital into a smart contract.

Typically, a small percentage of the total transaction volume is deducted from each trade and distributed proportionally among all liquidity providers based on their share of the pool. The fee structure is a core component of automated market maker protocols, incentivizing the continuous availability of assets for trading.

Higher volatility often leads to higher pool fees to compensate for increased risk. By balancing supply and demand, these fees help maintain the equilibrium of the liquidity pool.