Dynamic Pair Fee
A new way to collect transaction fees
Most existing AMMs collect a default transaction fee from users when swapping tokens; the fees are then distributed proportionally to liquidity providers as their reward for providing liquidity. However, this model might not be the most economically efficient and logical way of fee distribution as the risk and reward ratio of different LP pairs varies. This is why OolongSwap introduces the concept of dynamic pair fees when it comes to liquidity provider fees, taking into consideration of the risk level of different LPs.

Dynamic Pair fee (Liquidity Provider Fees)

In the newly introduced dynamic pair fee, while all pair defaults to a fee of 0.3%, the protocol enables governance to set the fee for any given pair to as little as 0.01% or as much as 1% (the fee percentage of different trading pairs will be set by the team/governance instead of users to avoid fragmented liquidity).
An example use-case of dynamic pair fee would be for setting the pair fee lower for stablecoin pairs such as USDCT/USDT, and similar-valued pairs such as renBTC/WBTC.
This is a step up from traditional AMMs and enables OolongSwap to better accommodate the risk and reward balance of different assets, and ultimately better liquidity provision and trading experience. Furthermore, this also allows OolongSwap to cover all AMM market spectrums: while traditional AMMs are divided into different niched markets with products such as Curve Finance catering more to stable swaps, dynamic pair fee enables OolongSwap to provide both sufficient liquidity and fair slippage on all trading pairs. Users will now no longer need to switch between niche market AMM and traditional AMM to swap different tokens, as OolongSwap does it all.

Path to Sustainability

To open a path to self-sustainability, the code for OolongSwap includes a small protocol charge mechanism. The protocol charge can be switched on, defaulting to a rate of 1/6th of the LP fee, and can be changed by governance to a value within the range between 1/6th to 1/2th of the LP fee. The fee will be sent to the Oolong PCV and be used as Oolong reserved fund.
Please note that this fee would not affect the fee paid by traders but would affect the amount received by liquidity providers.
Rather than calculating this charge on swaps, which would significantly increase gas costs for all users, the charge is instead calculated when liquidity is added or removed.