A fee tier is the percentage of the liquidity provider fee that swaps pay when swapping.
When providing liquidity you will receive your share of the collected fees. These get shared equally with all the liquidity providers in the pool.
When providing liquidity on Uniswap v3:
- Uniswap v3 protocol has the 1%, 0.3%, 0.05%, and 0.01% fee tiers.
- In v3 the fees get collected and stored, but these fees do not get added back into the pool.
- The liquidity provider has the ability to collect these fees. They have the choice of adding the fees back into the pool or keeping the fees.
- When removing Uniswap v3 liquidity positions, all the fees will be removed along with the liquidity amount chosen to remove.
When providing liquidity on Uniswap v2:
- The Uniswap v2 protocol only has a 0.3% fee tier.
- In v2 the fees are auto compounded into the liquidity pool. This means for every swap the fee will go back into the pool, increasing the value of your position.
- When removing Uniswap v2 liquidity positions, Fees are collected with the liquidity.