jake-wolf | Flipside Analyst

    jake-wolf

    Joined Jun 25, 2021
    //
    1Upvotes
    DAI Stability Fee

    DAI Stability Fee

    Jan 20, 2022 - What is a Stability Fee: The Stability Fee is a variable-rate fee continuously added to a Vault owner’s generated Dai balance. Stability Fees are a Risk Parameter designed to address the inherent risk in generating Dai against collateral in Maker Vaults. In simple terms this means that the stability fees is interest that is charged for borrowing. Just like taking a loan from the bank there will be an interest rate, as the cost of borrowing. What is a CDP: A collateralized debt position (CDP) is the position created by locking collateral in MakerDAO's smart contract to generate its decentralized stablecoin, DAI. So why decrease the stability fees? The goal of the stability fee is to keep DAI pegged to the USD. As many people were wanting to borrow as crypto currencies hit an all time high they increased the stability fee and that would keep it pegged to the USD, because the cost of borrowing would be higher. This would make it more expensive to borrow. As demand has dropped DAI needed to increase demand to keep DAI pegged to USD so they dropped the stability fees on borrowing. This would stimulate demand and increase the amount that was being borrowed. The graph is going to show the balance's over time, which is essentially showing the amount that is being borrowed. It comes as now surprise that as the stability fees dropped it has made more sense to lock up collateral in MakerDAO's smart contract, to receive DAI. As crypto has sky rocketed more people see the value in leveraging assets for a better potential return. You can buy more and as the stability fee's go down, which is essentially interest, the opportunity to make more money increases. ⚠️Maker Protocol Changes ⚠️ (1/5) ETH-A Stability Fee: 5.5% → 3.5% ETH-B Stability Fee: 10% → 9% ETH-C Stability Fee: 3% → 1% WBTC-A Stability Fee: 4.5% → 3.5% LINK-A Stability Fee: 5% → 4% YFI-A Stability Fee: 5.5% → 4% (This table is just one example of the different changes in stability fees there are many more based on the different smart contracts)

    jake-wolf