Multiple Fee Levels Will Be The Foundation of Concordex’s Innovative New DEX on Concordium
Concordex is an innovative new DeFi platform coming to the Concordium ecosystem. One of the key features offered by the platform will be multiple fee levels, which will not only improve the overall trading experience for both regular and institutional traders, but also simplify the process for new projects to acquire liquidity and drive growth.
The Benefits of Multiple Fee Levels
Multiple fee levels provide more benefits for liquidity providers compared to a static fee model. The profits earned by liquidity providers is the difference between the fees they earn and the impermanent loss incurred on their positions. As liquidity providers have no control over impermanent losses, a multiple fee level model offers them control over the fees they earn on their positions. However, they cannot consistently apply higher fee rates, so they need to balance between the usability of their position and the selected fee rates.
How Multiple Fee Levels Are Implemented
Platforms like Uniswap V3 utilize tiered fees by establishing multiple pools, each having a specific fee rate per position. For example, an ETH/USDC liquidity pair in Uniswap V3 will be divided among four pools, each with a distinct fee percentage — 0.01%, 0.05%, 0.3%, and 1%. Hypothetically, an LP can supply liquidity to a pool with their preferred fee rate.
But there’s a catch. What’s the purpose of injecting liquidity into a pool if no one is using it? The generated profit directly correlates with the fees collected, which depends on the frequency of pool usage. In reality, LPs are more inclined to add liquidity to the most demanded pool. This strategy, however, fragments liquidity across multiple pools, leading to potential inefficiency.
Concordex’s Approach To Multiple Fee Levels
Concordex introduces a unique approach where multiple fee levels are applied to every single position within the same pool. Each pool offers 8 levels, with fees ranging from 0.01% to 1.28% as outlined below:
This strategy brings a variety of benefits to developers, traders, liquidity providers and institutions.
Unlike other DEXs that require a dedicated smart contract for each liquidity pair with multiple fees, Concordex’s approach reduces transaction costs and processing power needs.
Concordex optimizes swaps by drawing liquidity from all fee tiers within the pool. Unlike platforms like Uniswap V3 where arbitrage occasionally happens across different fee tiers, in Concordex, arbitrage takes place with every swap, ensuring optimal prices for every trade.
Liquidity providers can maximize the profits earned by their positions. Other implementations have fragmented liquidity that leads to unequal trading volume, which causes a recurring cycle where more liquidity leads to less price impact, in turn leading to more volume and liquidity. Concordex disrupts this loop, providing a more profitable environment in the process.
The mandate for any institution is to optimize its trading experience while maximizing returns generated. Through multiple fee levels, institutions are offered an innovative solution whether they’re actively trading, or generating income through liquidity pools.
Fee Levels Are Immutable
The platform does not however allow fee levels on open positions to be changed. The reasoning is simple, positions are immutable and there’s a specific ratio of tokens within each position. As such, users need to close positions and open a new one if they wish to change their fee levels.
Concordex aims to empower institutional DeFi by building a robust set of DeFi tools on the regulatory-ready Concordium blockchain. By introducing innovative solutions like multiple fee levels, this DEX is poised to drive growth in the Concordium ecosystem while offering a unique trading experience to traders and liquidity providers alike.