A fee tier is the percentage of the liquidity provider fee that is applied to swaps in a liquidity pool.
Each provider adding liquidity to a pool receives a share of the fees earned by the pool. Fees are automatically distributed equally among all participating liquidity providers.
Fee tiers on Uniswap v4:
- Uniswap v4 offers an unlimited number of fee tiers.
- Earned fees are collected and stored, but do not get added back into the pool.
- Liquidity providers can collect earned fees without removing the liquidity from the position. (See more here: How to collect fees from a liquidity pool on Uniswap v4.)
- Once fees are collected, liquidity providers have the option of keeping the earned fees in their wallet or add them to their liquidity position.
- Removing liquidity from a position withdraws the amount chosen and any earned fees.
Fee tiers on Uniswap v3:
- Uniswap v3 offers 1%, 0.3%, 0.05%, and 0.01% fee tiers.
- Earned fees are collected and stored, but do not get added back into the pool.
- Liquidity providers can collect earned fees without removing the liquidity from the position. (See more here: How to collect fees from a liquidity pool on Uniswap v3.)
- Once fees are collected, liquidity providers have the option of keeping the earned fees in their wallet or add them to their liquidity position.
- Removing liquidity from a position withdraws the amount chosen and any earned fees.
Fee tiers on Uniswap v2:
- Uniswap v2 only offers a 0.3% fee tier.
- Earned fees are automatically added back into the pool increasing the value of the liquidity position.
- Removing liquidity from a position withdraws all tokens in the pool and any earned fees.