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Supply side fees refer to the portion of total user fees that go to the people or systems responsible for running the network. In most crypto protocols, that means validators, miners, or liquidity providers. Essentially, the participants who secure the network or provide infrastructure.
Let’s say users pay $1 million in total transaction fees on a protocol in a month. If 70% of that goes to validators or node operators, then supply side fees are $700,000. The remaining 30% might go to the protocol’s treasury, be burned, or routed elsewhere.
This is a critical metric because it helps explain where the value created by user demand is flowing. While total fees show the size of the economic activity, supply side fees show how much of that value is paid out to keep the system running.
In any decentralised network, the supply side plays a crucial role. Validators and miners are the backbone of the system. They process transactions, secure the network, and ensure everything runs smoothly. But they need to be compensated for their work, especially if there are costs involved like hardware, energy, or staking.
Supply side fees are essentially their paycheck. The more consistent and competitive these fees are, the more secure and reliable the network tends to be.
From a fundamentals perspective, this metric also reveals how much of the fee economy is retained by the protocol versus how much is paid out to external actors. That balance can tell you a lot about the network’s sustainability model.
Some protocols aim to keep validators highly incentivised. Others try to retain more value within the protocol to fund development, governance, or ecosystem growth. There’s no single right model; it depends on the project’s priorities and stage of maturity.
If supply side fees represent the majority of user-paid fees, it suggests the protocol is prioritising strong incentives for its security providers. This is common in early-stage networks that are still building trust and participation.
If the supply side share is smaller, the protocol may be retaining more value internally, possibly to build a treasury, reduce inflation, or fund growth initiatives.
A rising share of supply side fees over time could indicate increasing network decentralization or competition among validators. A declining share might mean the protocol is gradually shifting toward revenue retention or optimizing for capital efficiency.
The key is to view supply side fees in the broader context of fee generation, protocol revenue, and overall economic design. It’s not just about how much is being paid out, but whether that payout is aligned with what the network needs to grow, secure itself, and sustain participation over time.
