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In our concentrated liquidity protocol, swap fees are allocated proportionally to all in-range liquidity at the time of the swap transaction. Only those liquidity positions within the range of the current spot price have provided liquidity and are therefore eligible to earn fees. If the price moves out of the range of a position, the position will become inactive and no fees will be earned.
Unlike the standard AMM contract, where new swap fees are automatically accrued into the liquidity pool, in a concentrated liquidity protocol swap fees are accrued separately and liquidity providers can claim their fee income without withdrawing their liquidity. It is important to reiterate that the Sail protocol is simply a set of autonomous smart contracts deployed on Aptos and Sui and operated directly by users invoking functions on it (allowing them to interact with other users and/or pool their own selected assets in a multi-party peer-to-peer manner). There is no further control or interaction with the original entity that deployed the smart contract, which acts solely as a provider of technical tools to users and does not offer any type of securities product or regulated service, nor does it hold any user assets.
In our concentrated liquidity protocol, we can set up multiple pools for the same token pair with different fee tiers. Initially there will be 4 tiers allowed by the protocol: 0.01%, 0.05%, 0.25%, 1%.
Setting multiple fee tiers can better meet the needs of different types of trading pairs. It also encourages the market to naturally find the most ideal liquidity distribution plan. This gives much more flexibility to both liquidity providers and swappers.
It is reasonable to expect that different types of token pairs will tend to evolve towards certain fee levels according to their asset characteristics and the game of supply and demand between liquidity providers and traders. Assets with low volatility, such as stablecoins, are more likely to congregate in a pool with the lowest fee tier, as it is less risky for LPs to hold these assets and most traders expect their transactions to be executed as close to 1:1 as possible. On the other hand, assets that are traded infrequently may tend to attract a higher fee, as liquidity providers face higher risks in holding such highly volatile assets.
In order to maintain a healthy economic model that is beneficial to the sustainable project treasury for the long term development of the project, a percentage (20% by default) of the swap fees of each transaction on Seil is taken as a protocol fee.