Concepts & Features

Before exploring the mechanics, it’s important to understand the foundational concepts behind DLMM:

Price Bin

Each DLMM pool divides liquidity into discrete price ranges, called bins, which determine how trades interact with the pool.

• Liquidity in DLMM is divided into discrete price bins, each representing a small price range.

• Trades within a bin use only the liquidity in that bin. The price remains fixed inside the bin according to a constant sum curve (x⋅p + y = k).

Active Bin

The active bin is where trading actually happens at a given moment, as it contains liquidity for both tokens.

• The bin that currently contains both token X and token Y is the active bin. Trades occur here first.

• If the active bin runs out of liquidity on one side, the market price moves to the next bin in that direction.

Discrete Price Movement

In DLMM, prices move in steps rather than continuously, which helps LPs and traders anticipate slippage and makes 0-slippage swap possible around the market price.

• Price changes occur discretely from one bin to another, not continuously.

• This ensures slippage is bounded within each bin and allows better predictability for LPs and traders.

• For transactions that don't cross the currently active bin, 0 slippage is incurred.

Bin Step:

The bin step determines the price interval between two consecutive bins, expressed in basis points. A basis point is equal to 0.0001 (or 0.01%).

• A smaller bin step (e.g., 1 basis point) creates a more granular price range, allowing LPs to concentrate their liquidity more precisely around the active market price.

• A larger bin step (e.g., 100 basis points) broadens the price range between bins, which may be suitable for more volatile assets that require a wider range to accommodate price swings.

Example: If the price of the current active bin for a SUI-USDC pool is 10 and the bin step for this pool is set to 1 basis point (0.01%), the price for the next bin (to the right) would be at 10*1.0001=10.001, and the one after that at 10.001*1.0001=10.0020001. The pool price will remain unchanged at the current active bin price until a new swap crosses the bin.

Dynamic Fees

Cetus DLMM employs a dynamic fee model that automatically adjusts to market conditions. The total fee for a trade is composed of a base fee, set by the pool creator, and a variable fee, which responds to real-time market volatility.This ensures that:

• Slippage is minimized even during large trades.

• Capital efficiency is maximized, allowing liquidity to be deployed more effectively.

• Fees naturally scale with market activity, providing a fair and flexible experience for both traders and LPs.