CLMM Fees

After the above introduction, it’s easy to see that every liquidity position is different because they may have different price ranges and different liquidity amounts. For this reason, it is difficult to use the common LP tokens like AMM does as proof of a user’s liquidity provision. On HyperLaunch, it uses NFT (non-fungible token) to record the information of users’ non-fungible liquidity positions in CLMM. Every liquidity provider will get a unique NFT for each position they create on HyperLaunch. Each NFT proves that a user has a liquidity position on HyperLaunch. If this NFT is transferred to others, it means that the liquidity bond with the NFT is also transferred to others.

In regards to the fee distribution, fees generated in AMM pools are directly deposited into the same pool as the liquidity, so the liquidity in an AMM pool will grow little by little over time as long as there are swap transactions. However, in CLMM, because all liquidity positions are non-fungible, the fee distribution mechanism of AMM has to be discarded. Instead, the storage of fee earnings is separate under CLMM algorithm. When a swap transaction is executed, CLMM charges the fee out of the swap-from-token. There might be two tokens accumulated in the fee storage because different users may swap in different directions. When a liquidity provider withdraws their liquidity or explicitly claims their fee earnings, the fees accumulated by that particular position would finally be distributed to the liquidity provider’s wallet. Therefore, it is actually even clearer for liquidity providers to know how much fee they earned in a CLMM pool.

Initially, there are three fee tiers on HyperLaunch, namely 0.01%, 0.3%, and 1%. Different fee tiers suit different trading pairs. 0.01% is suitable for those stablecoin pairs and pegged-asset pairs and 0.3% suits most mainstream trading pairs. For those emerging projects or unique trading pairs, 1% could be considered. During the early stage, HyperLaunch will decide the fee tier for its different trading pools to ensure stability and control the market risks, during which, only one fee tier will be supported for each pool. Later on, each trading pool could support multiple fee tiers and liquidity providers would be allowed to choose the percentage they prefer. Moreover, new fee tiers could be added in the future if it is approved by DAO.