add domains/internet-finance/high-fee-amms-create-lp-incentive-and-manipulation-deterrent-simultaneously-by-making-passive-provision-profitable-and-active-trading-expensive.md

domains/internet-finance/high-fee-amms-create-lp-incentive-and-manipulation-deterrent-simultaneously-by-making-passive-provision-profitable-and-active-trading-expensive.md

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+---
+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]] <!-- claim pending -->
+- [[futarchy is manipulation-resistant because attack attempts create profitable opportunities for defenders]]
+- metadao.md
+
+Topics:
+- domains/internet-finance/_map
+- core/mechanisms/_map