Protocol Fees

The Pixel protocol charges a fixed 2% fee for every NFT transaction regardless of which front-end applications generated the taker or maker order. This fee is split between the protocol and the front-ends responsible for driving the transaction (the one that sourced the maker order and the one that executed the taker order, which could potentially be the same).

The fee percentage that will go to each frontend is a function of the time-weighted volume that each frontend has processed. This helps align long term incentives between the core protocol and the many participants building on top of it as it deters users to set up a front-ends to keep fees for a single transaction.

The weighted volume at time t for storefront s is given by the following function, where alpha is a protocol defined parameter that goes between 0 and 1. A higher alpha discounts older values faster.

$$\hat{v}_s(t) = (1-\alpha) * v_s(t-1) + \alpha * v_s(t)$$

​The percentage fee that goes to storefront s is given by the following piece-wise formula.

$$f_s(t) = \begin{cases} 0 & \hat{v}_s(t) < v_{min} \\ 0.95 * \frac{ \hat{v}_s(t) - v_{min}}{v_{max}-v_{min}} & v_{min}\leq \hat{v}_s(t) < v_{max} \\ 0.95 & v_{max}\leq \hat{v}_s(t) \end{cases}$$

​From here, it follows that the fee captured by the core protocol will go between 0.1% and 2%, the latter being the case when both storefronts are too small to start capturing fees.

Note: We are not distinguishing maker from taker volume but this might be something that the DAO might want to reconsider to promote the growth of the protocol.