  The standard approach for compensating liquidity providers on many
decentralized exchanges (DEX) for serving as counter-party to swaps is through
charging a small percentage of fees. The expected payoff from the cash flow of
this mode of market making has yet to be mathematically formulated in terms of
volatility in the existing literature. We provide here a preliminary derivation
of the payoff formula, by making the standard set of assumptions for efficient
markets, namely geometric Brownian price movements and zero arbitrage. Trading
volume, conventionally taken as an exogenous variable for fees calculation,
becomes a function of volatility and available liquidity in this formulation.
In doing so, we show that it is a near-linear function of the volatility of the
underlying risky asset. Since hedging instruments with such a property are
highly sought after, we discuss the potential of securitizing the cash flow of
liquidity fees to serve as a volatility product in its own right.
