Dynamic fees
Last updated
Last updated
The dynamic fees solution of Henjin v4 is one of its standout features. It offers only one pool with a dynamic fee model that calculates the fee depending on various factors such as volatility and pool volume.
Liquidity Providers (LPs) can choose custom price range options and find the best conditions for liquidity providing, minimizing price slippage and impermanent loss while maximizing their profits thanks to the higher fees obtained by Liquidity Providers. Thus, LPs can enjoy a more comfortable and easy LP experience.
On the other hand, Uniswap v3 has four different pools for every pair with fixed fees, making it difficult for LPs to select the most profitable one. With Henjin v4, LPs are not required to select pools and transfer liquidity between them to earn the highest fee rewards.
Henjin v4's dynamic fee model allows LPs to take on more risk by investing in a smaller price range and be fairly rewarded by increasing their LP effectiveness.
This approach is more capital-efficient and can provide greater returns to LPs, especially compared to the traditional “x * y = k” model.
By concentrating liquidity on narrower price ranges and using liquidity more efficiently, LPs using Henjin's v4 models with concentrated liquidity and adaptive fees can earn many times more from the same liquidity than those using the x * y = k model.
To find the optimal commission amount, depending on the nature of the asset's behavior, the following indicators are monitored:
Volatility
Liquidity
Trading Volume
High liquidity is supported by beneficial conditions for providers, which consist of high trading volume with low volatility. In this case, the following situations are possible for providers:
From this, the following conclusions can be drawn: When the volatility is high, it is necessary to increase the fee to compensate potential losses of liquidity providers; When the volume is low and there is sufficient liquidity, fees should be reduced in order to attract more volume.
This is why Henjin offers a complex formula for determining the current fees in the pool, taking into account changes in the parameters of volatility, trading volume and current liquidity.
