> For the complete documentation index, see [llms.txt](https://kayen-finance.gitbook.io/docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://kayen-finance.gitbook.io/docs/protocol-mechanics/kayenfi-v3/protocol-concept/fees.md).

# Fees

Every swap in Kayen Finance incurs a fee that is paid by traders and distributed to liquidity providers (LPs). These fees are the primary incentive for LPs to supply liquidity and serve as compensation for market risk, impermanent loss, and capital lock-up.

## How Swap Fees Work

When a trade is executed in KayenFi, a percentage of the trade amount is charged as a fee. This fee is distributed **pro-rata** to all LP positions that are *active,* meaning the current market price is within the range that the LP has chosen for their liquidity.

* **Active positions** earn a share of swap fees in proportion to the liquidity they’ve supplied within the current price range.
* **Inactive positions** (where the price moves outside their set range) stop earning fees until the price returns to their range.

Unlike some earlier AMM models, KayenFi does **not** auto-compound earned fees into the position. Instead, fees accumulate separately and can be claimed manually at any time.

## Fee Tiers in Kayen Finance

KayenFi offers **multiple fee tiers** per token pair, allowing LPs to match their risk and reward expectations to market volatility and trading activity.

The current standard fee tiers in KayenFi include:

* **0.01%:**\
  Ultra-low fee tier for pairs that demand extremely high volume and have very low volatility, such as highly liquid stablecoin pairs.
* **0.05%:**\
  Low fee tier ideal for stable pairs with low price volatility, such as correlated assets or highly liquid mainstream tokens that facilitate high-volume trading.
* **0.30%**:\
  Medium fee tier suited for most common pairs, offering a balance between trader cost and LP returns.
* **1.00%**:\
  High fee tier for exotic or highly volatile tokens where LPs face greater risk and deserve higher compensation.

Each pool is created with one of these fee tiers, and LPs choose which to provide liquidity to based on their strategy. For example:

* A **CHZ/USDT** pool with heavy daily trading volume might use **0.3% or 0.05%** to attract the largest number of trades.
* A **CHZ/new token** pair with unpredictable price movements might use **1.00%** to make LP participation worthwhile despite the risk.

## Protocol Fee Option

KayenFi also supports an optional **protocol fee** mechanism, which can be enabled via governance. When active, a set portion of the LP fees is redirected to the protocol treasury instead of going entirely to LPs. This percentage can be adjusted by governance depending on protocol needs.

This allows KayenFi to:

* Fund ongoing development and infrastructure.
* Build reserves for security, insurance, or ecosystem grants.
* Support long-term protocol sustainability without removing incentives for LPs.

{% hint style="info" %}

### Key Takeaways

1. **Only active liquidity earns fees**\
   Positions must be in range when swaps occur to earn fees.
2. **Fee tiers**\
   Four fee tiers (0.01%, 0.05%, 0.30%, 1.00%) exist to fit different market conditions. See above for an explanation of each.
3. **Fees must be claimed manually**\
   Fees are not auto-compounded into liquidity; they accumulate separately and can be claimed by LPs.
4. **Protocol fees are optional**\
   Governance decides whether to activate protocol fees that redirect a portion of LP fees to the treasury.
   {% endhint %}