From 38ec4b721b3faf781de9fff2e20cf025fb2c8b77 Mon Sep 17 00:00:00 2001 From: m3taversal Date: Sun, 15 Mar 2026 17:19:56 +0000 Subject: [PATCH] add domains/internet-finance/high-fee-amms-create-lp-incentive-and-manipulation-deterrent-simultaneously-by-making-passive-provision-profitable-and-active-trading-expensive.md --- ...profitable-and-active-trading-expensive.md | 48 +++++++++++++++++++ 1 file changed, 48 insertions(+) create mode 100644 domains/internet-finance/high-fee-amms-create-lp-incentive-and-manipulation-deterrent-simultaneously-by-making-passive-provision-profitable-and-active-trading-expensive.md diff --git a/domains/internet-finance/high-fee-amms-create-lp-incentive-and-manipulation-deterrent-simultaneously-by-making-passive-provision-profitable-and-active-trading-expensive.md b/domains/internet-finance/high-fee-amms-create-lp-incentive-and-manipulation-deterrent-simultaneously-by-making-passive-provision-profitable-and-active-trading-expensive.md new file mode 100644 index 00000000..6f0e27b3 --- /dev/null +++ b/domains/internet-finance/high-fee-amms-create-lp-incentive-and-manipulation-deterrent-simultaneously-by-making-passive-provision-profitable-and-active-trading-expensive.md @@ -0,0 +1,48 @@ +--- +type: claim +domain: internet-finance +description: "3-5 percent swap fees in futarchy AMMs reward liquidity providers while pricing out wash trading attacks" +confidence: experimental +source: "MetaDAO AMM proposal CF9QUBS251FnNGZHLJ4WbB2CVRi5BtqJbCqMi47NX1PG, 2024-01-24" +created: 2026-03-11 +--- + +# High-fee AMMs create LP incentive and manipulation deterrent simultaneously by making passive provision profitable and active trading expensive + +The MetaDAO AMM proposal uses 3-5% swap fees to solve two problems with one parameter: "By setting a high fee (3-5%) we can both: encourage LPs, and aggressively discourage wash-trading and manipulation." + +This is counterintuitive—traditional DeFi AMMs use low fees (0.05-0.3%) to maximize volume. But futarchy markets have different objectives: +1. **Price discovery over volume**: The goal is accurate conditional pricing, not trade throughput +2. **Manipulation resistance**: High fees make repeated trades (wash trading, price manipulation) prohibitively expensive +3. **LP attraction**: Futarchy markets are short-duration (days) with uncertain outcomes, requiring higher yield to attract capital + +The proposal expects this to create a specific market dynamic: "someone would swap and move the AMM price to their preferred price, and then provide liquidity at that price since the fee incentives are high." + +This is untested in production. High fees could also: +- Reduce legitimate price discovery if traders avoid the cost +- Create larger slippage for informed traders +- Fail to attract LPs if base volumes are too low + +The mechanism depends on futarchy-specific conditions (short duration, governance stakes, informed trading) that may not generalize. + +## Evidence +- Proposed 3-5% fee structure in MetaDAO AMM design +- Dual objective: LP incentive + manipulation deterrent +- Expected behavior: price discovery trade followed by LP provision +- No production data (experimental confidence) + +## Challenges +- Untested mechanism in live futarchy markets +- May reduce legitimate trading volume +- LP attraction depends on base trading activity + +--- + +Relevant Notes: +- [[liquidity-weighted-price-over-time-solves-futarchy-manipulation-through-capital-commitment-not-vote-counting]] +- [[futarchy is manipulation-resistant because attack attempts create profitable opportunities for defenders]] +- metadao.md + +Topics: +- domains/internet-finance/_map +- core/mechanisms/_map \ No newline at end of file