Overview #
Most exchanges use a fixed liquidity fee — usually a standard percentage taken from each swap and paid to liquidity providers.
While simple, this one-size-fits-all model makes it difficult for new token projects to set a flexible economic structure that fits their goals.
Alpaca DEX takes a different approach.
Token creators can define their own liquidity fee at launch. This fee determines what percentage of every swap is returned directly into the pool, increasing its depth and rewarding liquidity providers over time. Because the fee is adjustable (within a safe range), token creators can build liquidity strategies that match their token’s intended use, trading volume, and community expectations.
How the Liquidity Fee Works #
- Token creator sets a fee during token creation
When deploying a new token and pool for it through Alpaca, the creator chooses the liquidity fee.
This fee is the portion of each swap that is paid back into the liquidity pool. - Every swap contributes back to the pool
When a trade happens, part of the swap value is collected as the liquidity fee and immediately added to the pool’s reserves.
The deeper the pool becomes, the more stable the price impact becomes for traders. - LP providers receive the upside (upcoming feature)
Because the liquidity fee remains inside the pool:- LP tokens represent a larger share of higher-value reserves
- LP positions appreciate naturally with trading activity
- The pool grows over time without requiring extra deposits
- Fees never go to Alpaca
All liquidity fees belong solely to the pool and its liquidity providers. Alpaca does not take any portion of these fees.
Why This Matters #
Now you might ask youself what difference does it make, if the liquidity fee is a fix or a variable one.
There are a few benefits for a variable liquidity fee:
1. Better Liquidity Growth for New Tokens #
New projects often struggle with thin liquidity. A customizable liquidity fee allows teams to:
- Grow their pool faster
- Reduce early price volatility
- Support healthier trading conditions from day one
2. Clearer Incentives for LPs #
Liquidity providers benefit directly from every trade.
A higher liquidity fee means:
- More value retained in the pool
- Increased total liquidity
- Naturally improving LP token value over time
3. More Control for Serious Projects #
Not every token has the same economic purpose.
Some want fast, deep liquidity; others want lower trading friction. By letting creators choose a fee structure, Alpaca DEX supports:
- Community tokens
- Utility tokens
- Long-term projects
- High-volume tokens with specific economic goals
Creators aren’t forced into a fixed model that doesn’t match their project.
4. Competitive Trading Environment #
Even though creators set their own fee, the system encourages responsible choices.
Fees that are too high make trading unattractive; too low may slow liquidity growth.
Because the market reacts instantly, creators have strong incentives to choose a reasonable, sustainable fee level.
In Summary #
Alpaca DEX gives token creators a tool most exchanges don’t: the ability to define how much of each swap goes back into their liquidity pool.
This simple but powerful mechanism strengthens liquidity, rewards LPs, and supports long-term token growth — all while keeping trading fully non-custodial and transparent.
If you’re launching a token on Alpaca, your liquidity fee is one of the most important levers you control. When set responsibly, it becomes a direct engine for liquidity expansion and a long-term benefit for your community and liquidity providers.
