Shadowexchange
Shadowexchange: how gauges affect Shadow fee splits
Shadow Exchange is a decentralized exchange on Sonic whose default swap-fee allocation depends on whether liquidity has a gauge. Gauged liquidity allocates 100% to eligible xSHADOW voters. Without a gauge, the default is 95% to liquidity providers and 5% to the protocol. These splits are configurable per pool or gauge, and voter rewards require active staking and voting for the relevant epoch.
What the fee percentages measure
| Recipient | Liquidity with a gauge | Liquidity without a gauge |
|---|---|---|
| Eligible xSHADOW voters | 100% | 0% |
| Liquidity providers | 0% | 95% |
| Shadow protocol | 0% | 5% |
Each percentage applies to the swap fees collected from that liquidity. The fee that a pool charges on a trade is a separate rate. A 95% allocation to LPs therefore describes their share of fee revenue; it is not a return rate on their deposited assets.
Shadow adjusts trading fees dynamically in response to market volatility and trading volume. The amount available for distribution can change even when the recipient percentages remain the same. For a particular pool, its configured split determines the allocation; gauge status supplies the default.
How gauges change the LP income mix
A gauge is a rewards contract associated with eligible liquidity. In Shadow’s x(3,3) model, staked xSHADOW voters direct SHADOW emissions to gauged liquidity, with votes determining the allocation for the following weekly epoch.
The default 0% swap-fee share for LPs in gauged liquidity covers direct fee distribution. LP emissions and liquidity incentives are separate reward streams. For a whitelisted legacy pair with a gauge, providers stake their LP tokens in the corresponding gauge to earn those rewards.
In ungauged legacy pairs, swap fees allocated to LPs auto-compound into the pair. This gives LPs fee exposure through their liquidity position, while the documented default reserves 5% of collected fees for the protocol. A custom allocation can change the shares, so the presence or absence of a gauge does not establish the complete return from a position.
How the voter allocation becomes an individual reward
The 100% default voter allocation belongs collectively to eligible xSHADOW voters for that liquidity. Each voter receives a proportionate share according to their vote relative to the total votes allocated to it. Holding xSHADOW alone does not satisfy the active participation requirements.
To qualify for all weekly rewards through xSHADOW staking, the xSHADOW must be staked before the epoch flip and votes must be cast during that epoch. Epochs reset every Thursday at 00:00 UTC.
Fees and vote incentives associated with the liquidity voted for in the previous epoch become claimable immediately after the flip. SHADOW emissions directed by those votes are distributed linearly to the relevant liquidity providers throughout the following epoch. These are different distributions: the voter fee share and the LP emission allocation have different recipients and timing.
Decision checklist for comparing fee exposure
- Use the selected pool’s configured fee split whenever it differs from the documented gauge-status default.
- For an LP position, assess its swap-fee share alongside the emissions and liquidity incentives available through an eligible gauge.
- For xSHADOW voter income, account for the liquidity selected, the share of votes allocated to it and the staking and voting requirements of the relevant epoch.
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