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Overview of the Fee Structure in NFT AMMs
There are three parties that can receive fees when a trade is made.
- First, the pool creator.
- Second, the protocol itself (Collection.xyz).
- Third, any collection that implements royalties through ERC2981 would be able to collect on that. Pool fees can further be split into a flat fee (e.g. 0.5% of the value of the trade), or a carry fee (e.g. protocol fee 20% of the fee that a user charges).
Here is a breakdown of Collection’s fee structure -
We prefer carry fees over flat fees generally for true two-sided AMM activity (TRADE pools). DeFi protocols now have zero or near-zero fees and are run as public goods, and we feel that in two-sided AMM activity, flat protocol fees are poor design. NFTs with a tight width (e.g. 2-5%) between bid/ask are charged exactly the same as NFTs with a loose width (5-15%). What is fairer is that the protocol take should be proportional to the amount of the actual fees the user charges. A more transparent carry model, on the percent of the fees, itself a percent of the actual transaction value. Collection.xyz will start with 0% protocol fees, but ultimately we want to make money when the user makes money However, we maintain a flat fee for NFT/TOKEN pools since that is one-time liquidity (e.g., a TOKEN pool may have a bid for an NFT, but after it buys the NFT, it does not sell it again unlike two-sided TRADE pools). Since the pool is not a going concern once the trades are fulfilled, it is conceptually cleaner to have flat fees for these sorts of pools.