Triangle Fees

TL;DR

Triangle fees are a new fee structure for AMMs where fees decrease with trade size, improving price accuracy and revenue while reducing price staleness.

Contribution

The paper introduces triangle fees, a novel decreasing fee mechanism for AMMs that enhances price accuracy and revenue compared to constant fee models.

Findings

Triangle fees reduce price staleness.

They improve the Pareto efficiency of price accuracy and fee revenue.

They outperform constant fee mechanisms in simulations.

Abstract

Triangle fees are a novel fee structure for AMMs, in which marginal fees are decreasing in a trade's size. That decline is proportional to the movement in the AMM's implied price, i.e. for every basis point the trade moves the ratio of assets, the marginal fee declines by a basis point. These fees create incentives that protect against price staleness, while still allowing the AMM to earn meaningful fee revenue. Triangle fees can strictly improve the Pareto frontier of price accuracy versus losses generated by the status quo of constant fee mechanisms.