Hybrid Fee Model

Umbra adopts a hybrid fee model that balances flexibility and efficiency, ensuring optimal conditions for traders and liquidity providers (LPs). Instead of a rigid fee structure, Umbra implements preset fee tiers that cater to different asset classes, risk profiles, and trading behaviors. This approach enhances capital efficiency, liquidity depth, and LP profitability.

Why a Hybrid Fee Model?

Traditional AMMs either enforce a fixed fee structure (which lacks adaptability) or allow custom fee setting (which can lead to fragmented liquidity). Umbra’s hybrid model strikes a balance by offering preset fee tiers that pool creators can select from, ensuring:

• Standardized pricing for better user experience.

• Flexibility for different trading pairs and risk levels.

• Sustainability by aligning incentives for LPs and traders.

Preset Fee Tiers

Umbra introduces tiered fee options based on asset type and market conditions. These tiers ensure appropriate cost structures while maintaining liquidity incentives.

1. Stablecoin Pools (Low Volatility Pairs)

• Fee Range: 0.01% - 0.05%

• Examples: USDC-USDT, DAI-USDC

• Reasoning: Tight spreads and deep liquidity mean lower fees to encourage high-volume trading.

2. Blue-Chip Pairs (High Liquidity, Mid-Volatility Assets)

• Fee Range: 0.05% - 0.30%

• Examples: ETH-USDC, SOL-USDC

• Reasoning: These assets have significant liquidity but experience periodic volatility, requiring a moderate fee structure.

3. Long-Tail & Volatile Assets

• Fee Range: 0.30% - 1.00%

• Examples: Meme coins, newly launched tokens

• Reasoning: High-risk assets with price fluctuations require higher fees to compensate LPs for increased impermanent loss.

Future Dynamic Fee Adjustments

While Umbra starts with preset fee tiers, future upgrades will introduce dynamic fee adjustments based on:

• Market volatility: Higher fees during extreme volatility, lower during stability.

• Pool utilization: Adjusting fees based on trading volume and liquidity depth.

• Governance input: veUMBRA holders could vote on fee adjustments for specific pools.

Key Benefits of Umbra’s Hybrid Fee Model

✅ Enhanced Liquidity Efficiency – Encourages deep liquidity in high-demand pools. ✅ Improved LP Profitability – Allows LPs to select appropriate fee structures. ✅ Reduced Slippage & Trading Costs – Optimized fee tiers improve user trading experience. ✅ Flexibility for Projects & LPs – Projects can strategically choose fee models to attract liquidity.