Give LPs greater Fee Flexibility for AMM Pools: Raise Cap to 2.5% and Incentivise XRP Liquidity with Operation-Specific Fees

[hoos]

We propose enhancing the AMM fee system to give liquidity providers (LPs) more control over how liquidity is used in pools. Currently, the top 8 LPs vote on a single fee capped at 1%. Our idea is to let LPs codify their preferred liquidity dynamics by setting operation-specific fees that impact the pool’s exchange rate. LPs should be given greater power to decide how the liquidity they provide is to be used by adjusting the fees for single sided deposits/withdrawals and swaps to incentivise the flow of XRP into and out of the pool as they choose.

Raise the Fee Cap to 2.5%
Increasing the cap from 1% to 2.5% gives LPs room to experiment with fee structures that reflect their strategies, making pools more adaptable to market conditions.

Operation-Specific Fees for Single-Sided Actions
LPs could vote to set distinct fees for single-sided operations and swaps to steer liquidity usage.

Examples:
XRP deposits or swaps into the pool: Low fees (e.g., 0.1%) to boost XRP liquidity and adjust the exchange rate favourably for the paired token. Issuers and holder of the paired token should have the option to vote to reduce the fees of XRP entering the pool

XRP withdrawals: Higher fees (e.g., 1.5%) to deter XRP exits and stabilise the exchange rate offered by the pool. LP providers should have the option to disincentivise operations that deplete the XRP held in the pool.

[hoos]

Here's a video that provides more information based on LP participation in different pools:
Proposed amendments to XRPL AMMs 20 November 2024

[Island-Ghost]

Wow.. This was wrote a month ago. You have done a lot to prove and educate this. What do we need to do to make it an actual amendment and second.. Why do we need an ammendment for this?

[hoos]

Thanks IsIand-Ghost. I'm not entirely sure what the process is but I think we need to get some more interest on the discussion and a more detailed explanation of for the amendment. I'll post an a more detail proposal shortly. The more eyes we can get on this the better.

[ximinez]

This might get more traction as a discussion over in the XRPL Standards project.

[hoos]

Thanks @ximinez I'll post an update there.

[hoos]

I've created the standards discussion here: XRPLF/XRPL-Standards#282