# PriorityFeeTax

> Charges a swap in proportion to what it paid the block producer to get where it is in the block.

A production Uniswap v4 hook. Source: https://github.com/nirholas/priority-fee-tax. Part of the HookForge catalogue: https://hookforge.pages.dev

## How it works
Position in a block is worth something only to flow that is racing: an arbitrageur closing a gap against a centralized venue, a liquidator, a sandwicher. A person swapping a hundred dollars of one token for another does not care whether they land at index 3 or index 30, and does not bid for it. So the priority fee a transaction attaches is a revealed measure of how much the trade is worth to the trader beyond the trade itself, and that surplus is value the pool's liquidity providers are the counterparty to. The hook reads `tx.gasprice - block.basefee`, the priority fee per unit of gas actually paid, and adds a surcharge along a saturating curve:   surcharge(priority) = maxSurcharge * priority / (priority + halfPriority) At `priority == halfPriority` the swap pays half the cap. The surcharge is an LP fee, so it goes to in-range liquidity; the hook takes nothing and holds nothing. The trader cannot dodge it by bidding low, because bidding low is exactly the concession the hook is asking for: a searcher who drops their priority fee to avoid the surcharge loses the race that made the trade profitable. That is the point. The hook prices the option to be early rather than trying to detect who is early. Prior art: fee mechanisms keyed on realized volatility, on price movement and on swap size are all well covered. The idea that priority fees reveal flow toxicity is discussed in the ordering-fee literature and in Uniswap's own research on priority-ordering auctions, but the surcharge itself has been implemented at the sequencer or the router, never inside the pool where the liquidity providers who bear the cost can be paid directly. Chain support, stated plainly. This works where there is a real priority-fee market: Ethereum, Base, Unichain, Optimism, Blast and other OP-stack chains. On Arbitrum One transactions are ordered first-come-first-served and the priority fee is normally zero, so on that chain the hook charges `baseFee` and nothing more. It is safe there, it is simply inert, and a pool on Arbitrum should use {ArbTaxDecayHook} instead.

## Prior art
Fee mechanisms keyed on realized volatility, on price movement and on swap size are all well covered. That priority fees reveal flow toxicity is discussed in the ordering-fee literature and in Uniswap research on priority-ordering auctions, but the surcharge has only ever been implemented at the sequencer or the router, never inside the pool where the liquidity providers who bear the cost can be paid directly.

## Where it does not help
Needs a real priority-fee market. On Arbitrum One, where ordering is first-come-first-served and the priority fee is normally zero, the hook is safe but inert and a pool there should use ArbTaxDecay instead.

## Facts
Slug: priority-fee-tax
Contract: PriorityFeeTaxHook
Callbacks: beforeSwap, afterInitialize
Parameters: baseFee (uint24), maxSurcharge (uint24), halfPriorityWei (uint128)
Dynamic fee required: yes

## Caveats
- Unaudited.
- A deployment with status "deterministic" is a mined CREATE2 address with no code at it yet. Never present one as live.