A liquidity provider (LP) deposits both tokens of a pair into a pool. Every trade pays a fee, and that fee is shared among the LPs whose liquidity was in range when the trade happened.
The trade-off
As the price moves, an LP's position shifts toward the token that is falling. Compared with simply holding the two tokens, the LP can end up with less value. This is called divergence loss. Fees are what make up for it.
Choosing a fee tier
| Tier | Usually for |
|---|---|
| 0.05% | Pegged or very stable pairs |
| 0.30% | Most pairs |
| 1.00% | Thin or volatile pairs |
Rules that pay LPs more
- Size-Scaled Fee charges large trades more, and that fee goes to LPs.
- LP Stream sends a share of each buy straight to in-range liquidity.
- Snipe Guard's opening tax is donated to LPs too.