Can fees differ for buying and selling the same coin?

You might assume that if you're using the same pool to buy and sell ETH, the fee rate would be the same. However, there are methods that calculate fees differently depending on the direction of the trade.

The VolatilePair Hook introduced by Uniswap on October 14th is one such example. The name sounds a bit complex, doesn't it? 😄 Think of a hook as a feature that attaches custom rules to a Uniswap v4 pool. This hook is currently applied to the ETH/USDC pool on the Ethereum mainnet; it does not apply to all Uniswap swaps.

Why would fees be different for both directions?

Let's imagine a situation where the price of ETH moves suddenly. If the price has risen in other markets but the old price remains in the pool, someone might notice that discrepancy and trade ahead.

Here, a pool is a place where assets are pooled together so people can exchange coins. The people who deposit their coins are called Liquidity Providers (LPs). When trades happen while the market price and the pool price differ, it can lead to unfavorable outcomes for them.

The VolatilePair Hook adjusts fees in such situations to reduce the burden on LPs. It recalculates the fee for every swap by reflecting the pool's recent price movements and the direction of the trade. Note that it doesn't directly read prices from external exchanges.

It adjusts buy and sell fees independently, and temporary fees may apply to trades that revert prices after a large movement. Because multiple conditions act in concert, it's hard to simply memorize a rule like 'if ETH goes up, buy fees are always higher'.

While designed to mitigate the impact of price changes through fees, this doesn't mean that LP losses are completely eliminated.

Even with the same fee rate, the amount received can differ

This hook doesn't use the trade amount as a direct input when calculating the fee rate. However, that doesn't mean you'll get the same price regardless of whether you swap a small or large amount.

Depending on the liquidity available in the pool, swapping a large amount at once can move the price more significantly. Even if the fee rates are the same, there can be a difference in the final amount of coins you receive.

Fee conditions might also change between the time you check the quote on your screen and the time the trade is executed. You also need to check network fees separately. Understanding which pool you're using and the direction of your trade, even when exchanging the same coin, will help you better grasp your costs.