1. Fees

In Perp City, the majority of fees are charged to takers in order to compensate makers, market creators, and to fund insurance. The fees charged to both makers and takers are detailed under Universal Fees.

Taker Fees

When a taker position is opened, taker fees are charged as a percentage of notional positional value. They can be broken down into four components, each configurable by the market creator:

1. Dynamic LP Fee

This fee is the dominant trading fee, and is distributed to maker positions that service active liquidity ranges. It is configured by setting a fee floor, a fee ceiling, and other parameters for adaptivity to liquidity levels.

2. Utilization Fee

The utilization fee incentivizes taker open interest to use an optimal portion of available maker liquidity. It is paid continuously by takers to makers and adjusts dynamically based on the ratio of taker demand to maker supply.

When liquidity is underutilized, the fee decreases to encourage more takers and discourage idle makers from keeping capital deployed. When utilization is too high, taker demand risks exceeding maker capacity, potentially preventing new positions from opening or existing positions from closing. In this case, the fee increases to discourage takers and attract new makers.

Because this mechanism must affect existing positions in real time, the utilization fee is charged continuously rather than only on open or close. Makers receive their share immediately, ensuring live incentive effects that allow them to respond to changing market conditions without waiting for takers to exit.

3. Insurance Fee

This is a static percentage-based fee used to continually replenish a market's insurance fund, providing ongoing protection against insolvency risk. We are still testing insurance fees under different market conditions, and will document guidance on choosing an optimal insurance fee when we have supporting data. See Insurance Model to understand how insurance funds are used.

4. Creator Fee

This is a static percentage-based fee, which incentivizes the market creator to build a high quality manipulation-resistant oracle and design with stability in mind for sustainable growth in volume over time.

These fees are held in the market contract but cannot be claimed by anyone other than the creator address. This compensation structure is essential to the vision of permissionless market creation, where anyone can design and deploy new markets.

Because all markets are initially created by Strobe Labs, the creator fee is set to zero.

Universal Fees

Funding

Funding can be thought of as a continuous cost for one side of the market. We go into more detail in the Funding section. However, we do not currently support funding fees. It's possible these would be added to the fee module in the future.

Liquidation Fees

When maker or taker positions are liquidated, a liquidation fee is charged. This fee is paid to the liquidator, incentivizing quick liquidations and helping prevent the buildup of bad debt. The conditions that qualify a position for liquidation are detailed in Solvency.