v4 Fee Structure Guide

Overview of Fee Types

This page describes fee behavior in the current FewToken + Uniswap v4 integration environment. It should be read as technical integration guidance, not as documentation for a separate native v4 AMM.

In this v4 integration stack, there are three main types of fees to understand:

• LP Fee: Fees allocated to liquidity providers
• Protocol Fee: Fees collected by the protocol
• Swap Fee: Total fee paid by swappers (calculated by applying protocol fee and LP fee sequentially)

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LP Fees

LP fees are set by the pool initializer at pool creation and may be static or dynamic.

Fee Range:

• Maximum LP Fee: 100%
• Minimum LP Fee: 0%
• Granularity: Fees are set at pip-level precision

Static LP Fees

• Immutable once set during pool initialization
• Unlimited fee options in v4-style pools
• Integrators should confirm the selected LP fee from the pool configuration instead of assuming fixed fee tiers

Dynamic LP Fees

Dynamic fees offer more flexibility and real-time adjustability:

• A dynamic fee pool signals this capability by setting its LP fee to 0x800000 (where the first bit = 1)
• Only the pool's hook can update the dynamic fee—no additional permissions required
• A hook cannot update fees if the pool's fee is not set to 0x800000

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Protocol Fees

Protocol fees are configured per pool with the following characteristics:

• Controlled by the protocol fee controller (set by the pool manager owner)
• Maximum protocol fee: 0.1% (1,000 pips)
• Granularity: Fees are set at pip-level precision (not basis points)
• Unit conversion: 1 basis point = 100 pips
• Directional fees: Separate fees can be set for:
  • token0 → token1 swaps
  • token1 → token0 swaps

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Swap Fees

Sequential Fee Application

In this v4 integration stack, the swap fee is the effective total fee after applying both protocol and LP fees sequentially.

Application Order

1. Protocol fee applied first to the input amount
2. LP fee applied second to the remaining input (after protocol fee deduction)

Impact on LP Fee Share:

Note that this sequential application means introducing or increasing protocol fees will reduce the LP fee share even if swap volume remains constant, since LP fees are calculated on a smaller base amount.

Fee Cap

• Total swap fee capped at 100% of input amount
• Important: If swap fee = 100%, exact output swaps become impossible (entire input consumed by fees)

Fee Calculation Formula

// Method 1: Sequential application
uint256 swapFee = protocolFee + (lpFee * (1_000_000 - protocolFee)) / 1_000_000; (rounded up)

// Method 2: Mathematically equivalent
uint256 swapFee = protocolFee + lpFee - (protocolFee * lpFee) / 1_000_000;

Mathematical Derivation

Starting with input amount:

amountIn

Step 1: Protocol fee takes:

amountIn × (protocolFee / 1_000_000)

Step 2: Remaining after protocol fee:

amountIn × (1 - protocolFee / 1_000_000)

Step 3: LP fee applies to remaining:

lpFee × (remaining amount)

Final formula:

swapFee = protocolFee + (lpFee × (1 - protocolFee / 1_000_000))

Which simplifies to:

swapFee = protocolFee + lpFee - (protocolFee × lpFee) / 1_000_000

Example Calculation

Given:

• protocolFee = 50 pips → 0.005%
• lpFee = 3000 pips → 0.30%

Calculation:

swapFee = 50 + 3000 - (50 × 3000) / 1_000_000
        = 50 + 3000 - 150 / 1_000_000
        = 50 + 3000 - 0.15
        = 3049.85 pips

Result: 3049.85 pips = 0.304985% total swap fee

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Key Takeaways

• Sequential application: Protocol fees are deducted first, then LP fees apply to the remainder
• Dynamic flexibility: v4 introduces unlimited static fee tiers and dynamic fee capabilities
• Directional control: Protocol fees can differ by swap direction
• Fee interaction: The combined effect is slightly less than simple addition due to sequential application