Dynamic Fee Hook for Uniswap v4

This project implements a Dynamic Fee mechanism for Uniswap v4 pools using hooks. The DynamicFeeHook automatically adjusts LP fees based on trading conditions to optimize revenue capture during periods of high volume or volatility.

Overview

Uniswap v4 introduces hooks - customizable logic that can intervene at various points in the swap lifecycle. This DynamicFeeHook leverages the hook system to:

• Start with a base fee (0.05%) during normal market conditions
• Automatically increase fees during periods of high trading volume
• Scale fees up to 3% during extreme market activity
• Track volume and swap metrics for analysis

This allows LPs to capture more value during high-volume trading periods (common with memecoins and volatile assets) while maintaining competitive fees during normal market conditions.

Key Features

• Progressive Fee Structure: Five fee tiers (0.05% to 3%) that adjust dynamically
• Volume-Based Metrics: Fee calculations based on actual trade size
• Optimized Contract Size: Designed to fit within Ethereum's contract size limits
• Easy Integration: Seamless hook integration with standard Uniswap v4 pools

Fee Tiers

Fee Tier	Percentage	When Applied
BASE_FEE	0.05%	Default fee under normal conditions
LOW_FEE	0.1%	During periods of slightly elevated trading
MID_FEE	0.3%	During medium volume trading
HIGH_FEE	1%	During high trading volume
EXTREME_FEE	3%	During massive trading activity

Implementation

The main contract is DynamicFeeHook.sol, which implements the following hook functions:

• beforeInitialize & afterInitialize: Configure initial pool settings
• beforeSwap: Calculate and apply the dynamic fee for the current swap
• afterSwap: Update volume metrics and price data after the swap

The hook tracks trading volume and calculates fees based on the size of individual swaps:

// Very simplified fee logic to reduce contract size
// Check recent volume
if (swapVolume > 1000e18) {
    return EXTREME_FEE;
} else if (swapVolume > 100e18) {
    return HIGH_FEE;
} else if (swapVolume > 10e18) {
    return MID_FEE;
} else if (swapVolume > 1e18) {
    return LOW_FEE;
}

Deployment & Usage

Deploying the Hook

forge script script/04_DynamicFeeHook.s.sol --rpc-url <YOUR_RPC_URL> --private-key <YOUR_KEY> --broadcast

Take note of the deployed hook address.

Updating Configuration

Update the script/base/Config.sol file with your hook address:

IHooks constant hookContract = IHooks(YOUR_DEPLOYED_HOOK_ADDRESS);

Creating a Pool with the Hook

forge script script/01_CreatePoolOnly.s.sol --rpc-url <YOUR_RPC_URL> --private-key <YOUR_KEY> --broadcast

Adding Liquidity

forge script script/02_AddLiquidity.s.sol --rpc-url <YOUR_RPC_URL> --private-key <YOUR_KEY> --broadcast

Testing with Swaps

forge script script/03_Swap.s.sol --rpc-url <YOUR_RPC_URL> --private-key <YOUR_KEY> --broadcast

Running Tests

forge test --match-contract DynamicFeeHookTest

Implementation Considerations

1. Contract Size: The Ethereum contract size limit is 24KB. The DynamicFeeHook is optimized to fit within this limit.

2. Hook Flags: The hook uses the following permission flags:

   • BEFORE_INITIALIZE_FLAG
   • AFTER_INITIALIZE_FLAG
   • BEFORE_SWAP_FLAG
   • AFTER_SWAP_FLAG

3. Fee Updates: Only the hook specified at pool creation can update dynamic fees for that pool.

Future Enhancements

Potential improvements to consider:

• Time-weighted volume tracking for more sophisticated fee strategies
• Price impact considerations in fee calculations
• Token-specific fee strategies for different pairs
• More complex volatility-based fee adjustments

Dependencies

• Foundry/Forge for development and testing
• Uniswap v4 core and periphery contracts

License

MIT