# Dynamic Fees
The dynamic fee model and pool reblancing for our AMM was created by iterating on the numerous AMM designs throughout crypto over the years but adapted to the specific characteristics of a constant product system, which doesn’t use discrete price bins. Instead, we use factors like volatility to compute the dynamic fee.
Dynamic Fee depends on
1. **How volatile the market is:** If prices are fluctuating frequently, we increase the fee to protect the pool and generate more rewards for Liquidity Providers (LPs).
2. **How balanced the pool is:** GAMMA aims for a 50/50 split of token amounts in the pool. The further away from that balance we get, the more we adjust the fee.
3. **Volume:** If trading volume is high, fees can adapt to provide the optimum returns for LPs.
***
## **Dynamic Fee Formula**
{% code fullWidth="false" %}
```
dynamic_fee_rate = base_fee + volatility_component + recent_price_volatility
```
{% endcode %}
* **volatility\_component**
{% code lineNumbers="true" fullWidth="false" %}
```
volatility_component = min(max_volatility_fee, volatility_factor * recent_price_volatility)
```
{% endcode %}
* **recent\_price\_volatility**
recent_price_volatility = (max_price - min_price) / avg_price over the last N observations
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