how to set bridging aggregator fee splits

Here’s a comprehensive guide on how to set bridging aggregator fee splits, covering the key concepts, participants, models, and technical considerations.

1. Key Participants in the Fee Split

First, you need to identify all the parties involved in a single bridge transaction:

1. Bridging Aggregator (You): The platform that finds the best route for the user. You provide the UI/UX, API, and routing intelligence.

2. Underlying Bridge/Liquidity Provider(s): The actual protocols that hold the liquidity and execute the cross-chain swap (e.g., Socket, Li.Fi, Stargate, Hop, Across). They often have their own fee models.

3. Referrer/Partner: A dApp, wallet, or website that directs the user to your aggregator (e.g., a DeFi dashboard that integrates your widget).

4. User: The end-user performing the swap. (They pay the fee, they don't receive it).

The fee split is about dividing the total fee charged to the user among the first three parties.

2. Common Fee Split Models

Here are the most prevalent models, ranging from simple to complex.

Model 1: Fixed Percentage Split

This is the simplest model. You pre-define fixed percentages for each participant.

• Example:

• Aggregator Fee: 60%

• Bridge/LP Fee: 30%

• Referrer Fee: 10%

Pros:

• Simple to implement and understand.

• Easy to calculate and audit.

Cons:

• Inflexible. Doesn't account for different cost structures of various bridges.

• May not be optimal for competitiveness or profitability.

Model 2: Fixed Aggregator Fee + Pass-Through Costs

In this model, you charge a fixed fee for your service, and the rest is passed directly to the bridge/liquidity provider. The referrer fee is a percentage of your fixed fee.

• Calculation:

1. Total User Fee = Aggregator Fixed Fee + Bridge Native Fee

2. Aggregator Revenue = Aggregator Fixed Fee - Referrer Cut

• Example:

• Your fixed fee: 0.1% of the swap volume.

• Bridge's native fee: 0.3%.

• Total user fee: 0.4%.

• Referrer gets 20% of your fixed fee (i.e., 0.02% of the volume).

• Your final take: 0.08% of the volume.

• Bridge's final take: 0.3%.

Pros:

• Very transparent for users and partners.

• Ensures you always cover your base operational costs.

• Easy to integrate with various bridges that have different fee models.

Cons:

• Your revenue doesn't scale if the bridge's native fee is high for a complex route.

Model 3: Dynamic / Competitive Sourcing Model

This is the most sophisticated model used by top-tier aggregators. The "fee" is essentially the difference between the ideal exchange rate (e.g., spot price) and the rate you offer the user. You then compete with other aggregators on this final rate.

In this model, the split is not a percentage of a fixed fee, but rather an optimization problem:

1. You source quotes from multiple bridges and DEXs.

2. Each quote has a "bridge fee" and an "output amount."

3. Your system finds the route with the best output amount for the user.

4. You can then keep the difference between the output amount of the chosen route and a slightly worse route, or between the chosen route and a benchmark rate.

This is often called "taking the spread" or "surplus extraction."

• Example:

• Route A offers 1000 USDC for 1 ETH.

• Route B offers 999 USDC for 1 ETH.

• You show the user Route A.

• You could potentially take a small portion of that 1 USDC difference as your fee, while still giving the user a better rate than Route B. The rest of the difference is the bridge's inherent fee and spread.

Pros:

• Maximizes profitability through market efficiency.

• Appears more "fair" to users as it's embedded in the exchange rate, not a separate line item.

• Makes you highly competitive.

Cons:

• Extremely complex to implement correctly and transparently.

• Can be seen as non-transparent if not communicated well.

• Requires deep integration and real-time market data.

3. Step-by-Step Guide to Setting Your Fees

Step 1: Analyze Your Costs & Value Proposition

• What are your operational costs? (Server, RPC nodes, team, etc.)

• What unique value do you provide? (Best rates, fastest speed, widest chain support, best UX?)

• Who is your target user? Are they fee-sensitive or convenience-sensitive?

Step 2: Research the Competition

• Look at other major aggregators (LI.FI, Socket, Squid, Bungee).

• Try to reverse-engineer their fee structure by doing test transactions.

• Understand the standard fees charged by the underlying bridges (e.g., Stargate has a fixed LP fee and a protocol fee).

Step 3: Choose Your Primary Model

• Start with Model 2 (Fixed + Pass-Through) for its simplicity and transparency.

• As you scale and your routing engine becomes more sophisticated, evolve towards Model 3 (Dynamic).

Step 4: Define Referrer Tiers

Not all partners are equal. Create a tiered system:

• Tier 1 (Standard): 10-15% of the aggregator fee.

• Tier 2 (Strategic Partner): 20-25% of the aggregator fee.

• Tier 3 (Volume-Based): A sliding scale that increases the referrer cut as they bring more volume.

Step 5: Technical Implementation

This is typically handled in your backend or smart contract.

1. Quote Generation: When a user requests a quote, your system calculates the route and the total fee.

2. Fee Breakdown:

   javascript

   // Example Structure for a Quote Responseconst quote = {
     inputAmount: "1000000000000000000", // 1 ETH
     outputAmount: "2850000000", // 2850 USDC
     totalFee: "15000000", // 15 USDC
     feeBreakdown: {
       aggregatorFee: "9000000", // 9 USDC (60%)
       bridgeFee: "4500000",     // 4.5 USDC (30%)
       referrerFee: "1500000",   // 1.5 USDC (10%)
     },
     transaction: { ... }};

3. Payment Flow:

• Taken at the destination: A small amount of the outputAmount is diverted to your treasury and the referrer's address.

• Taken at the source: A small amount of the inputAmount is kept before the bridge transaction.

• The user pays the inputAmount.

• The bridgeFee is sent to the bridge's contract as part of the swap.

• The aggregatorFee and referrerFee are either:

Step 6: Transparency and Communication

• Display the Fee Breakdown: Be transparent in your UI. Show the user exactly what they are paying for.

• Documentation: Have a public page or FAQ that explains your fee model.

• Partner Dashboard: Provide a dashboard for your referrers to track their fees and volume.

Example Scenario

Let's walk through a concrete example using Model 2 (Fixed + Pass-Through).

• User wants to bridge: 1 ETH from Ethereum to Arbitrum.

• Your Fixed Fee: 0.1%

• Underlying Bridge (Stargate) Fee: 0.2%

• Referrer Rate: 20% of your fixed fee.

Calculation:

1. Total Fee Percentage: 0.1% (Yours) + 0.2% (Bridge) = 0.3%

2. Total Fee in ETH: 1 ETH * 0.003 = 0.003 ETH

3. Breakdown:

• Bridge Gets: 0.002 ETH

• Your Gross Fee: 0.001 ETH

• Referrer Cut: 20% of 0.001 ETH = 0.0002 ETH

• Your Net Fee: 0.001 ETH - 0.0002 ETH = 0.0008 ETH

The user receives 1 - 0.003 = 0.997 ETH on Arbitrum (minus gas), and the fees are distributed accordingly.

Final Recommendations

• Start Simple: Begin with a clear, fixed model (like Model 2) to avoid complexity.

• Be Transparent: Hidden fees will erode user trust. Clearly display all costs.

• Iterate: As you gather data on volume, costs, and user behavior, adjust your model. You might find you can lower fees to be more competitive or need to slightly increase them to sustain operations.

• Legal Compliance: Ensure your fee structure, especially with referrals, complies with relevant financial regulations in your jurisdiction.