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In addition to transaction fees, Ripple also has transit fees when exchanging IOUs. Is it supposed to be common to pay transit fees, or is it for rare cases only? How much would the transit fees typically be?

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For now, gateways are using transit fees as their primary revenue source. Bitstamp currently charges 0.2% and that's pretty typical.

We hope that those fees will go down over time for two reasons. First, competition and increased volume should bring the fees down. Second, when interest rates start to rise to more historically normal levels, gateways can use the interest on money they hold as a revenue source.

We've been asked to have a "transit fee cap" so a single transaction can't have a transit fee above a limit regardless of transaction size. And we've been asked to have a "fee exempt" flag so gateways can exempt particular accounts from paying transaction fees (perhaps in exchange for a monthly fee). These changes are under active consideration. For technical reasons, they're not as easy to implement as they might seem.

  • Would the transit fee cap be part of the protocol, so that no single gateway could violate the rule? If I understand correctly, a gateway could hold your account hostage by raising their transit fee to a very high amount. What would be the defense against this in the absence of a protocol-level cap? Perhaps to spread out your funds into multiple gateways (just like the banks). – Manish Apr 27 '13 at 22:24
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    The fee cap would be something each gateway could set for each currency. So if you had a USD gateway, you could specify a .2% transfer fee, capped at $0.10 per transaction. If a gateway sets their transfer fee high, they hold everyone's balance hostage, which they can do anyway by refusing to redeem. Of course, raising the transfer fee or cap (if they set one) would be very public. – David Schwartz Apr 27 '13 at 23:21

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