WTF is stability fees in DAI?

[SiverSurfer]

Hi guys,

I am thinking of minting some DAI just to play around, I like the idea of locking my ETH in smart contract and create the DAI, it give assurance that there really is collateral.

However I don't understand the stability fees. It is now at 12.5% and it's risen from 0.X%. Please don't tell me this is the interest rates aka money that I need to pay MakerDao for creating the DAI. If it is then it's really WTF.....Does it mean that for every 1 DAI I create I have to pay 0.12USD worth of DAI to them.....

I hope I am wrong though, as I think there is potential in this project.

[leea-1334]

Hmm I do not get it. I checked out DAI after reading this post as I did not know about it, though I have heard of DAI,,,

It does seem as if you are right you have to pay that, but not 0.12USD just 0.12DAI.

But I am also now curious, why would we make DAI if we have to pay that much fees? Is the whole point of it to have fixed DAI USD value when you settle? Do let me know.

[JeffBrad12]

However I don't understand the stability fees. It is now at 12.5% and it's risen from 0.X%. Please don't tell me this is the interest rates aka money that I need to pay MakerDao for creating the DAI. If it is then it's really WTF.....Does it mean that for every 1 DAI I create I have to pay 0.12USD worth of DAI to them.....

You have owned your answer and that's it. AFAIk, the stability fees just like an interest that must be paid to the makerDAO as the makerDAO holders are a party who can vote to the how much interest that must be applied to the DAI loan service.

It does seem as if you are right you have to pay that, but not 0.12USD just 0.12DAI.

Are you joking? have you checked the price of DAI? DAI is a stable coin and 0.12DAI has the same mean at $0.12.
this time DAI valued at $1 for each DAI

[Ucy]

I guess the stability fee is to discourage CDP (Collateralized Debt Position) owner from minting too much DAI and cause the price to fall below one dollar... This is basically to keep the price stable
So the fee at 12.5% is to discourage you from minting more than the actual demand

[SiverSurfer]

Hmm I do not get it. I checked out DAI after reading this post as I did not know about it, though I have heard of DAI,,,

It does seem as if you are right you have to pay that, but not 0.12USD just 0.12DAI.

But I am also now curious, why would we make DAI if we have to pay that much fees? Is the whole point of it to have fixed DAI USD value when you settle? Do let me know.

Totally, love DAI but curious AF about this, and 0.12DAI is just 0.12USD, or worse if you think about the collaterised debt which is at least 1.5 times.

[SiverSurfer]

I guess the stability fee is to discourage CDP (Collateralized Debt Position) owner from minting too much DAI and cause the price to fall below one dollar... This is basically to keep the price stable
So the fee at 12.5% is to discourage you from minting more than the actual demand

I kinda understand you but don't really get it.

Any minting of DAI has to be collateralized, in fact over collateralized. So why is the stability needed to discourage over-minting when the minting itself is already collateralized, or over collateralized as said.

[SiverSurfer]

What is the Stability Fee?
Maker collects a Stability Fee, which is calculated against the total amount of DAI drawn on your CDP.

The Stability Fee is calculated continuously. As we show in the formulas below, this type of compounding refers to a form of accrual that is measured in tiny increments instead of weeks, months, or years. This produces a fee that is very close to what one would expect from an annualized compounding.

Let's look at the various results from applying different types of compounding fees, given a debt of 100,000 DAI that has been held for 365 days and where the Stability Fee is 2.5%

Calculated with annual compounding the future Stability Fee is:

100,000 × (1 + (2.5% / 1)) ^ (1 × 1) - 100,000 = 2500 DAI
Calculated with monthly compounding the future Stability Fee is:

100,000 × (1 + (2.5% / 12)) ^  (12 × 1)  - 100,000 = 2528.84 DAI
Calculated with continuous compounding the future Stability Fee is:

100,000 × 2.7183 ^ (2.5% × 1) - 100,000 = 2531.52 DAI
The difference between annual and continuous compounding fees on a 100,000 DAI debt works out to about 31.52 DAI.

This format was chosen due to highly variable lifetime of CDPs. As there are no minimum restrictions on how long a CDP has to remain open, it is important for the system to effectively track extremely small accruals.

From https://cdp.makerdao.com/help/what-is-the-stability-fee

[HarHarHar9965]

The MakerDAO Stability Fee is calculated against the Dai drawn on your CDP
You can think of the Stability Fee as the interest rate you pay for minting (i.e., borrowing) Dai. The Stability Fee accrues continuously and can be paid in either MKR or Dai. MKR token holders determine the Stability Fee percentage through Maker’s governance system, known as the MakerDAO. Composed of MKR token holders, the MakerDAO maintains and secures the Maker credit system by voting on issues that affect the system’s growth and stability. Thus, MKR holders are in charge of ensuring that the Dai supply fits the market’s demand for Dai.

[rose9696]

Hi guys,

I am thinking of minting some DAI just to play around, I like the idea of locking my ETH in smart contract and create the DAI, it give assurance that there really is collateral.

However I don't understand the stability fees. It is now at 12.5% and it's risen from 0.X%. Please don't tell me this is the interest rates aka money that I need to pay MakerDao for creating the DAI. If it is then it's really WTF.....Does it mean that for every 1 DAI I create I have to pay 0.12USD worth of DAI to them.....

I hope I am wrong though, as I think there is potential in this project.

I think this is the cost for the transaction or the cost you use their technology.
This is their policy and every time you receive a reward you only lose $ 0.12, which is not a very large number if you are aiming for something bigger.

[ChrisPop]

Stability fee is the interest rate you need to pay annually for the created Collateralized Debt Position. So now it comes into question if you are better by taking a loan from the local bank whose interest rate I suppose is not bigger than 8-9%. However if the DAI and the MakerDAO project will get more adoption I expect to see a drop in the stability fee. Keep in mind that the stability fee is set by the MKR hodlers so if you are a big whale go bag some MKR and have a word to say in the voting process.

[carlfebz2]

Links that are relevant about that stability fees.

https://www.reddit.com/r/MakerDAO/comments/93adqj/faq_stability_fee_raise/
https://www.coindesk.com/dai-stablecoins-stability-fee-nears-20-after-latest-makerdao-vote
https://settle.finance/blog/whats-the-makerdao-stability-fee-and-how-does-it-affect-me/

[SiverSurfer]

Stability fee is the interest rate you need to pay annually for the created Collateralized Debt Position. So now it comes into question if you are better by taking a loan from the local bank whose interest rate I suppose is not bigger than 8-9%. However if the DAI and the MakerDAO project will get more adoption I expect to see a drop in the stability fee. Keep in mind that the stability fee is set by the MKR hodlers so if you are a big whale go bag some MKR and have a word to say in the voting process.

The stability has been increasing most of the time.....so I am not sure about reduction anytime soon.

[cribusen]

Does it mean that for every 1 DAI I create I have to pay 0.12USD worth of DAI to them.....

I hope I am wrong though, as I think there is potential in this project.

DAI is the best stable coin at the moment, and the fee is to keep the price stable. I would rather pay some fee to ensure that the price won't fell below one dollar, than investing in centralised garbage stable coins like Tether.

[SiverSurfer]

Does it mean that for every 1 DAI I create I have to pay 0.12USD worth of DAI to them.....

I hope I am wrong though, as I think there is potential in this project.

DAI is the best stable coin at the moment, and the fee is to keep the price stable. I would rather pay some fee to ensure that the price won't fell below one dollar, than investing in centralised garbage stable coins like Tether.

But why are we charge 7-12% per annum (depending on their weekly or montly voting it fluctuates) when we create DAI? This is more than the interest rates bank are charging.