Fee votes and the auction slot

The fee

Every swap against a pool pays a trading fee. It can be anywhere from 0% to 1%. The fee is not sent to anyone. It stays in the pot, so each LP token is worth a little more of the pot.

The people who hold LP tokens choose the fee. Each one can vote for a number. Bigger holders count for more. The pool's fee is the weighted average of the votes.

Providers have a reason to pick a sensible number. Set it too high and traders use the order book instead. Set it too low and providers earn little for the risk they take.

This fee is different from a token's transfer fee. An issuer sets a transfer fee, and that amount is burned.

The auction slot

When the outside price of an asset moves, a pool's price is stale until someone trades it back into line. The traders who do that are called arbitrageurs. Their gain comes out of the pool.

The XRPL design sells them a head start. One account at a time can hold the auction slot. The holder trades against the pool at one tenth of the normal fee, for up to 24 hours. The slot is bought with LP tokens, and the winning bid goes back to the pool. That returns some of the arbitrage gain to the providers.

AMMVote takes Asset, Asset2 and TradingFee (0 to 1000, units of 1/100,000).

• The fee moves in steps of 0.001%.
• Up to 8 votes count. If more accounts vote, the 8 with the most LP tokens count.
• The fee is recalculated only when someone places a vote, even if that vote is not in the top 8.
• amm_info lists vote_slots with each voter's trading_fee and vote_weight. A weight of 1000 means 1% of the LP tokens.
• AMMDeposit can carry a TradingFee vote too.

AMMBid takes Asset, Asset2 and optional BidMin, BidMax and AuthAccounts.

• The slot lasts 24 hours, split into 20 intervals of 72 minutes.
• Discounted fee: 1/10 of the trading fee, shown as discounted_fee in amm_info.
• AuthAccounts: up to 4 more accounts that share the discount.
• Minimum bid for an empty or expired slot: LPTokens * TradingFee / 25.
• To displace a holder, bid the minimum plus up to 105% of what they paid, reduced by the time they have used.
• Refund to an outbid holder: B * (1 - t), where B is their bid and t is the fraction of the 24 hours elapsed, rounded down to a multiple of 0.05. In the final interval the refund is zero.
• A bid above BidMax, or more than the sender's LP tokens, fails with tecAMM_INVALID_TOKENS.
• If the trading fee is zero, the slot gives no discount.

Slot timing uses the close time of the previous ledger, so it can differ from clock time by about 10 seconds.

Related: Pools and LP tokens, Risks for liquidity providers.