# 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.