// GLOSSARY -- DEFI

What is Swap Fee?

1 min read Updated

A token swap fee is the charge applied by a DEX for executing a trade — typically 0.01-1% of the trade value, distributed to liquidity providers and sometimes the protocol treasury.

WHY IT MATTERS

Swap fees compensate liquidity providers for the risk they take (impermanent loss, smart contract risk). Without fees, no one would provide liquidity. The fee level balances LP compensation with trading attractiveness.

Uniswap V3 offers multiple fee tiers: 0.01% (stablecoin pairs), 0.05% (popular pairs), 0.3% (standard), and 1% (exotic pairs). Traders naturally route to the lowest-fee pool with sufficient liquidity.

Fee revenue is a key metric for protocol valuation. Protocols that generate significant swap fee revenue have more sustainable economics than those relying on token incentives.

FREQUENTLY ASKED QUESTIONS

Who receives swap fees?
Liquidity providers, proportional to their pool share. Some protocols also have a protocol fee (fraction going to the treasury/token holders). The split varies by protocol.
How are fees calculated?
As a percentage of the input token amount. A 0.3% fee on a $1000 swap costs $3. This is deducted from the trade automatically — you receive slightly less output than the pure mathematical price.
Do aggregators add fees?
Most aggregators include a fee (positive slippage capture, frontend fee). 1inch's positive slippage model means they earn when execution beats the quoted price.

FURTHER READING

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