Uniswap Labs has launched a new fee tool called StablePair Hook on Uniswap v4, designed for stablecoin trading pools. Two initial pools are now live on Ethereum: USDC/USDT and USDC/USDG. Unlike conventional fixed fees, this mechanism dynamically adjusts liquidity providers' fee income based on the degree of price deviation from the peg and the direction of trades.
Initially covering two pools
This initial rollout will be limited to stablecoin pairs closest to a 1:1 trade. Uniswap Labs believes these pools are better suited for testing dynamic fees, as prices typically fluctuate slightly around the peg, making the magnitude and direction of deviations easier to quantify.
- The available pools are USDC/USDT and USDC/USDG.
- Deploy on the Ethereum mainnet.
- Functionality operates on the Uniswap v4 architecture.
Uniswap Labs stated that stablecoin-to-stablecoin trading is now one of the platform’s most active trading categories. The company reported that in the second quarter of this year, stablecoin-to-stablecoin trading volume on Uniswap reached $43.4 billion, surpassing the combined volume of the next three largest on-chain trading venues.
Fees vary based on the degree of deviation.
The core of this mechanism is to set a reference exchange rate and a narrow price range for each pool. The system recalculates the fee that liquidity providers should receive for each transaction, based on the current pool price, the extent to which the pool price deviates from the reference rate, and the direction in which the transaction pushes the price.
While the price remains within the set range, quotes on both the buy and sell sides are kept as consistent as possible. When the price is exactly at the reference point, fees for both directions are equal. As the price approaches the edge of the range, fees for trades pushing the price further toward the edge gradually decrease, while fees for trades pulling the price back toward the center increase.
Corrected transactions use a decreasing fee structure.
Once the pool price moves completely outside the set range, the fee logic changes further. If a trade continues to push the price away from the reference value, no fee will be charged; however, if the trade direction helps bring the price back toward the peg, the system will initially apply a higher fee, which gradually decreases block by block until an arbitrageur is willing to take the trade.
The purpose of this design is to allow the pool itself to capture a portion of the arbitrage spread, rather than giving all the opportunity to external traders. Uniswap also notes that this does not eliminate price impact. Since the fee does not vary with trade size, large trades may still execute along the pool’s pricing curve, resulting in a worse average price.
Governance-adjustable parameters
Currently, only Uniswap Labs can create new pools using the StablePair Hook. However, fee curves and other pool parameters can still be adjusted through Uniswap governance, and liquidity providers do not need to migrate to new pools due to parameter changes.
This means that the fee models for the USDC/USDT and USDC/USDG pools are not set permanently after initial configuration. If early trading data indicates that the range width or decay rate needs adjustment, the governance process can directly modify the relevant parameters.
Additional information: Uniswap Labs stated that StablePair Hook is its first upgradeable, dynamic fee Hook. According to data disclosed by the company, Hooks on Uniswap v4 have collectively processed over $38 billion in trading volume, approximately $32 billion of which has occurred this year, with over 90,000 Hooks initialized across 20 chains.