# Dynamic Penalty Fees

{% hint style="warning" %}
Under the current contract settings, triggering a penalty fee will result in the transaction being reverted.
{% endhint %}

In a functional derivatives market, it is common for Pfair to deviate from Pspot depending on the liquidity and market situation. However, excessive deviation and unreasonable trading behavior should be discouraged through economic means. The definition of Pmark reflects this principle.

**To protect our LPs and limit order makers while not impacting normal trading behavior,** Oyster AMM employs a stability penalty mechanism. When a trade results in a **higher deviation of fair price to mark price than before the trade,** a stability penalty will be charged based on the following, in addition to the normal trading fees paid to **LPs or limit order makers.**

$$
D(P\_{\text{fair}}, P\_{\text{mark}}) = \frac{\max(P\_{\text{fair}}, P\_{\text{mark}})}{\min(P\_{\text{fair}}, P\_{\text{mark}})} - 1
$$

$$
StabilityPenaltyRatio(P\_{\text{fair}}) = a \cdot D^3 + b \cdot D^2 + c \cdot D + d
$$

Trades that result in deviation less than MMR would have no stability penalty. Trades that result in deviation above MMR would have an increasing stability penalty ratio.


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