> ## Documentation Index
> Fetch the complete documentation index at: https://docs.arrakis.finance/llms.txt
> Use this file to discover all available pages before exploring further.

# Dynamic Fees

Every AMM pool charges a fee on each trade, and most pools charge a single fixed fee. A fixed fee is always a compromise. Set it too low and the pool leaks value to arbitrageurs when the market moves quickly. Set it too high and it suppresses the everyday volume that generates income. Real markets are not static: volatility rises and falls, volume surges, and inventory drifts away from balance, so the fee that was right an hour ago is rarely right now.

Dynamic Fees is a feature of the Arrakis Hook on Uniswap v4 that adjusts the pool's trading fee in real time based on live market conditions. Arrakis's market-making system raises the fee when volatility, a volume surge, or inventory imbalance calls for it, capturing more on the flow that costs LPs the most, and lowers it when the market is calm and balanced to attract volume and stay competitive. The result is higher fee income and less adverse selection than a static fee can deliver, with no action required from the team.

## How it works

Dynamic Fees runs as part of the vault's active management. Arrakis's market-making system reads live signals for the pool, computes the fee that fits current conditions, and the Arrakis Hook on Uniswap v4 applies it onchain. The fee moves gradually, so the pool adapts continuously without sudden jumps that would unsettle traders or invite gaming.

```mermaid theme={null}
flowchart LR
    Signals[Live signals: volatility, volume, inventory imbalance] --> MM[Arrakis market-making system computes the fee]
    MM --> Hook[Arrakis Hook on Uniswap v4 applies it onchain]
    Hook --> Pool([Pool fee adapts gradually])
```

The fee responds to two main conditions:

<Card title="Volatility and volume surges">
  When realized volatility or trading volume spikes above its normal range, the fee rises. Sharp moves and bursts of activity are when liquidity is most exposed to arbitrage and impermanent loss, so a higher fee captures more from that flow and compensates LPs for the risk. As the market calms, the fee falls back to attract volume.
</Card>

<Card title="Inventory imbalance">
  As the pool's inventory drifts away from balance, the fee adjusts by side to defend it. It becomes more expensive to trade in the direction that deepens the imbalance and cheaper in the direction that restores it.
</Card>

## Directional fees

Because the hook can price each side of the pool independently, Dynamic Fees can be asymmetric. A common configuration makes it more expensive to sell the token the pool already holds in excess, nudging flow toward rebalancing the inventory rather than worsening it, the same maker-taker logic market makers use on order books.

## Configuration

Dynamic Fees runs alongside the active strategy, most commonly [**Flagship**](/flagship). Arrakis's market-making system manages the fee, so the team does not set or adjust it trade by trade. The fee is not an onchain parameter the team configures: a team opts into Dynamic Fees by accepting the underlying pool the Arrakis Hook runs on. The vault stays self-custodial throughout.

## Considerations

<Columns cols={1}>
  <Card title="Requires the Arrakis Hook on Uniswap v4.">
    Dynamic Fees is part of the Arrakis Hook and runs on the chains where Arrakis operates Uniswap v4 vaults. Pools on other venues use a static fee tier.
  </Card>

  <Card title="Managed by Arrakis, not set by the team.">
    The fee is computed and updated by Arrakis's market-making system from live signals. It is not an onchain setting the team controls; the team opts in by accepting the pool the Arrakis Hook runs on.
  </Card>

  <Card title="Most valuable in active markets.">
    The benefit comes from adapting to changing conditions. In a consistently quiet, balanced market the fee simply sits near its baseline.
  </Card>
</Columns>

## FAQ

<AccordionGroup>
  <Accordion title="Who decides the fee at any given moment?">
    Arrakis's market-making system computes the fee from live signals (volatility, volume, and inventory), and the Arrakis Hook on Uniswap v4 applies it onchain.
  </Accordion>

  <Accordion title="Does this work on any DEX?">
    No. Dynamic Fees relies on the Arrakis Hook on Uniswap v4, so it runs on the chains where Arrakis operates v4 vaults. On other venues the vault uses a static fee tier.
  </Accordion>

  <Accordion title="Can it run alongside Price Convergence?">
    Yes. Both are enabled by the Arrakis Hook on Uniswap v4. Dynamic Fees manages the trading fee while [**Price Convergence**](/price-convergence) aligns the pool price to an external reference, and they can run together on the same vault.
  </Accordion>
</AccordionGroup>