Choose allocated fees, fee share, total fees, a constant-input projection, or required daily volume. Enter USD amounts, an effective LP fee rate, and your share of fee-earning liquidity; one month means 30 days.
Liquidity Pool Fee Formula
The following equation is used to calculate the Liquidity Pool Fee.
- Where LPF is the liquidity pool fee
- TPF is the total pool fees
- S is your fee-earning liquidity amount, in the same units as TL; the widget uses 100 × S / TL as the effective percentage share
- TL is the total liquidity
To calculate the liquidity pool fee, multiply the total pool fees by the ratio of your share to the total liquidity.
What is a Liquidity Pool Fee?
Definition:
A liquidity pool fee typically refers to the portion of transaction fees or rewards generated from a liquidity pool that is attributed to a participant based on their share of the pool’s total liquidity.
How to Calculate Liquidity Pool Fee?
Example Problem:
The following example outlines the steps and information needed to calculate the Liquidity Pool Fee.
First, determine your share of the liquidity pool. In this example, your share is 5,000 equivalent liquidity units in an active pool that totals 100,000 equivalent units, giving a 5% effective share.
Next, determine the total fees generated by the pool. In this example, the pool earned 500 USD in distributable LP fees.
Finally, calculate the liquidity pool fee using the formula above:
LPF = TPF × (S / TL)
LPF = 500 × (5,000 / 100,000)
LPF = 500 × 0.05
LPF = 25 USD
FAQ
What is a liquidity pool?
A liquidity pool is a collection of funds locked into a smart contract, used to facilitate trading by providing liquidity for decentralized exchanges and other DeFi platforms. Participants earn rewards or fees in return for depositing their funds into the pool.
How are fees in liquidity pools typically distributed?
Fees are allocated according to the protocol’s fee-earning liquidity rules. Concentrated positions generally earn only while in range, and protocol fees may reduce the amount distributed to LPs. The calculator assumes a constant effective share and LP rate; it does not calculate profit after gas, taxes, or investment losses.
What factors influence the liquidity pool fee?
The fee can be affected by overall trading volume, total liquidity in the pool, the fee structure set by the platform or protocol, and how long you keep your share in the pool. Market conditions and token price fluctuations can also impact earnings.
