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

type	domain	description	confidence	source	created
claim	internet-finance	3-5 percent swap fees in futarchy AMMs reward liquidity providers while pricing out wash trading attacks	experimental	MetaDAO AMM proposal CF9QUBS251FnNGZHLJ4WbB2CVRi5BtqJbCqMi47NX1PG, 2024-01-24	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

Additional Evidence (confirm)

Source: 2024-01-24-futardio-proposal-develop-amm-program-for-futarchy | Added: 2026-03-16

MetaDAO's AMM proposal sets fees at 3-5% explicitly to 'both: encourage LPs, and aggressively discourage wash-trading and manipulation.' The mechanism works because high fees make price manipulation through wash trading expensive while creating strong incentives for liquidity provision.

Additional Evidence (confirm)

Source: 2025-01-14-futardio-proposal-should-deans-list-dao-update-the-liquidity-fee-structure | Added: 2026-03-16

Dean's List DAO increased swap fees from 0.25% to 5% base (up to 10%) specifically to create a tiered market structure where large trades accept higher fees for deep liquidity while small trades use individual LP pools with lower fees. The proposal explicitly states this creates 'earning opportunities for DAO contributors' through the fee differential, with projected annual treasury growth of $19,416-$24,960 despite expected 20-30% volume decrease.

---

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