As of now, traders don’t pay any fees to liquidity providers (and the DAO). Setting fees to zero was a decision made when the DeFi hub launched, to attract traders and volume. Now that the INTR rewards stopped and were not renewed, traders are left with no yield at all.
However, the “bring-your-own-fee” feature, that allows users to do transactions on Interlay and pay the fee in other currencies than INTR, requires to have at least a small amount of liquidity for the supported tokens (iBTC, USDT, INTR). That means we should encourage liquidity provider to supply a minimal level of liquidity for the existing pairs by setting a swap fee.
Since the transaction fees on Interlay are in the sub-cent range, there will likely be low volume on the pools, which would require a rather high fee. Given the small fees for such swaps, users of that feature will likely be very insensitive to swap fees as the absolute amount of fees is still very low. Hence, it is suggested to charge a 1% swap fee for this service which will all go directly to the liquidity providers.
To provide a specific example, the current fee for a swap on Interlay is 0.01128 INTR, which corresponds to $0.00018048 (given an INTR price of $0.016 as of 31.10.2023). Therefore, the additional trading fee would cost the user $0.000001805, which is an order of magnitude that users will most likely not even recognize.
Simultaneously, setting a relatively high swap fee adds additional utility for INTR since it will be cheaper for users to pay transactions in INTR rather than using other tokens.